Beruflich Dokumente
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Whilst the group has the longest-dated income streams in the sector, an
above sector average 5.1 per cent dividend yield and a solid balance sheet, its high
level of gearing remains a risk in our view. The tough retail occupational
market, highlighted by the spate of tenant failures, remains a challenge.
CITYVIEWS
EasyJet plc
20Nov 14Nov 15Nov 16Nov 19Nov
640
650
660
670
680
690 p
692.00
20Nov
WEDNESDAY 21 NOVEMBER 2012
11
NEWS
cityam.com
Bernanke says fiscal cliff could see US
topple back into depths of recession
FALLING over the fiscal cliff could shock
the US back into recession, Federal
Reserve chairman Ben Bernanke warned
in a speech yesterday evening.
The fiscal adjustment, though
necessary in the long run, would be too
much for the weak recovery to absorb in
one dose, Bernanke told an audience at
the New York Economic Club.
The realisation of all the automatic
tax increases and spending cuts that
make up the fiscal cliff, absent offsetting
changes, would pose a substantial threat
to the recovery, he said.
BY BEN SOUTHWOOD
By the reckoning of the Congressional
Budget Office and that of many outside
observers, a fiscal shock of that size would
send the economy toppling back into
recession, he added.
Bernankes warning came in a speech in
which he promised that the Feds
monetary stance will not return to
normal until a considerable time after
the economic recovery strengthens.
We want to be sure that the recovery is
established before we begin to normalise
policy, he said.
Since the Fed expects the economy to
remain weak until mid-2015, his
commitment means the unprecedented
asset purchase programme known as
QE3 and the close-to-zero federal funds
rate could persist for years longer.
Bernanke used the rest of his speech to
explain why he thought Fed policy was
working, despite the abnormally slow
economic recovery.
Research suggests that our previous
asset purchases have eased overall financial
conditions and provided meaningful
support to the economic recovery in recent
years, Bernanke claimed. He put weak
growth down to crisis in Europe, the
financial and housing crash and resultant
tight credit conditions, combined with
slowly tightening fiscal policy.
THE NEXT governor of the Bank of
England must speak to his own staff
more often than Sir Mervyn King has,
to include a wider range of views in
policymaking and to understand the
development of the Banks future
leaders, City grandee Bill Winters
said yesterday.
Winters wrote a review of the Banks
liquidity operations and found staff
are afraid to express honest opinions
to policymakers and senior managers
because they fear their ideas would be
shot down out of hand, and that their
careers may suffer if they disagree
with their superiors.
Future governors should show a
human touch, he told the Treasury
Select Committee of MPs, if they are
to understand the Bank and gain
insight into the risks facing the finan-
cial sector.
The governor should regularly
hold meetings in small groups with
staff two or three levels below the
deputy governors, to find out the
Threadneedle
Street needs a
human touch
BY TIM WALLACE
degree to which they feel able to
express their views, Winters said.
And it would also let him find out
more about the next generation of
senior staff.
In future, the Bank should also
ensure it promotes people based in
part on their skills as managers, not
just with technical skills.
Management skills are very impor-
tant in choosing the next governor,
he said.
Ex-JP Morgan banker Bill Winters said Bank
of England bosses should be more receptive
WEDNESDAY 21 NOVEMBER 2012
12
NEWS
cityam.com
Bank of Englands Weale warns
high inflation means end of QE
INFLATION will be too high for the
next two years, ruling out any more
quantitative easing (QE), top Bank
official Martin Weale said yesterday.
But he defended the policy from
complaints that it hurts pensioners,
and said that in future it may be
possible to argue QE actually
reduces inflation by raising
productivity.
Under QE the Bank prints money
to buy government debt, to push
down interest rates. This is meant to
stimulate the economy, but it also
drives up inflation.
BY TIM WALLACE
In addition, QE has been criticised
as it reduces the value of the
annuity retirees can buy with their
pension pots, attracting the ire of
the older generation.
Weale yesterday defended the
policy, arguing that young people
have been particularly badly hit by
the downturn and so need support
from the central bank.
In particular he noted that almost
10 per cent of young men have been
unemployed for more than six
months, compared with just over
three per cent for men aged 31 to 64.
As a result he feels hitting the old
with QE has been justified because
it helps the young.
However, Weale said high
inflation should rule out any more
QE for now.
It is more likely than not that
inflation will remain above target
for much of the next two years, he
told the Manchester Economics
Seminar. Additional stimulus
would, without any corresponding
improvement in productivity, add to
inflation.
But he added that he hopes QE
may one day be shown to improve
productivity, allowing the Bank to
print more money without fear of
inflation soaring.
BANKS and finance firms increased
their fundraising through bonds,
shares and commercial paper in
October, according to Bank of
England data published yesterday,
as improving financial market
conditions allowed firms to tap up
more investors.
Gross share issuance hit its
highest level in more than a year at
1.3bn in the month, up from
0.2bn in September. Bond issuance
rose from 14.5bn to 17.8bn, while
commercial paper issuance
increased from 14.1bn to 15.4bn.
By sector, monetary and
financial institutions raised
Bond and share issuance jump
on improved market conditions
BY TIM WALLACE
13.6bn, up from 12.1bn in
September, while other finance
firms raised 12.7bn up from 7bn,
though non-finance firms issuance
slid from 9.3bn to 7.7bn.
Schemes like QE3 in the US, the
European Central Banks plan to
buy Spanish bonds and sustained
low interest rates have all calmed
investors and improved
fundraising conditions.
However, net issuance fell 5.8bn
as not every maturing debt
instrument was rolled over, with
banks net issuance dropping
9.9bn, but other institutions
issuance turning positive at 1.2bn
and non-finance firms coming in
at 2.9bn.
Martin Weale defended the Bank of Englands purchase of 375bn in bonds
Roger Lambert, who led the 20m share
placing for Secure Trust, is chairman of cor-
porate broking at Canaccord Genuity.
Despite being a generalist, he has been
heavily involved in some of Canaccords
most recent fund raises in the nancial sec-
tor.
These include a 25m fundraising for pri-
vate wealth manager Rathbone Brothers,
and its 25m fund raising at the start of this
month.
Lambert came under the Canaccord
Genuity umbrella after it snapped up Collins
Stewart in March 2012, having worked for
the rm since 2010.
Before joining Collins Stewart he spent 26
years at stockbroker Cazenove, where he
worked in corporate broking.
Working alongside Lambert was Paul
Baines, chairman of Canaccord Genuity
Hawkpoint, who performed the advisory
and Nomad role for Secure Trust.
Baines joined Hawkpoint in 2001, which
was then was acquired by Collins Stewart in
2011.
He was previously head of corporate
nance at Charterhouse, which was
subsequently taken over by ING in 2006.
The Secure Trust deal is the third fundrais-
ing in as many weeks for Canaccords
Financial Services team.
Last week Canaccord was sole broker and
adviser to Brookes MacDonald on a 21.5m
placing.
ADVISERS CANACCORD GENUITY
ROGER LAMBERT
CANACCORD GENUITY
13
NEWS
WEDNESDAY 21 NOVEMBER 2012
Banks are pressing the BBA to
consider a trade group merger
SEVERAL UK banks want their
trade association to consider
merging with other industry
groups as part of a radical re-
think of the British Bankers
Associations (BBA) structure and
finances.
The BBA used to be able to
charge for the use of Libor data,
but the association has lost that
multi-million pound revenue
stream since the interest rate
fixing scandal broke over the
summer.
Now members are urging it to
BY TIM WALLACE
consider every avenue in
cutting costs and boosting
revenues.
We expect the BBA to think
about all sensible options to
manage the budget for
example, considering a merger
with one of the host of trade
bodies out there, said a banking
source.
A few of us have suggested
this, but it is down to the BBA to
pull together the options and
assess them, then put it to the
members.
The BBA is understood to be
considering a range of options
which could be put to its board
in the near future.
But rival industry bodies have
already poured cold water on the
idea.
We are not in discussion with
the BBA, said a spokeswoman
from the Council of Mortgage
Lenders yesterday, arguing the
pair would likely make a poor
match.
We are mortgage market
specific, covering a wide range of
lenders in the market. The BBA is
sector specific, covering
organisations of a particular
type, she added.
PAYDAY lenders must do more to
check borrowers can afford their
loans, delay more foreclosures and
moderate their debt collection prac-
tices, the Office of Fair Trading (OFT)
warned yesterday as it announced
investigations into several lenders.
But the bodys new report also
found most customers of payday
lenders are satisfied with the service
they receive, often using the credit
services as a lifeline when they are
short of funds.
Despite concern from con-
sumer groups, the OFT
report pointed to industry
evidence that 56 per cent
of customers used payday
loans to prevent a one-
off financial difficulty
becoming a wider finan-
cial crisis, while 54 per
cent felt the loans made it
easier to pay bills on time.
However, the OFT still
wrote to all 240 pay-
day lenders to
express concerns
Payday lenders
in trouble over
customer care
BY TIM WALLACE
over their behaviour.
We are concerned about the extent
to which advertising appears to target
people in financial difficulty and
encourage rolling over of loans, the
report said. For example, around one
third of websites [reviewed] included
statements such as no credit checks,
loan extension guaranteed and
extend loans up to four or five times.
That would suggest irresponsible
lending and failure to carry out
affordability checks.
And the OFT also fears that giving
the annualise interest rate on a loan is
insufficient to give a balanced view of
the service, as the full risks of tak-
ing on a loan are not always
explained clearly.
The organisation revealed sev-
eral investigations relate to wor-
ries over debt collection,
including allegations firms mis-
lead customers, pestered debtors
over the phone and threatened
excessive collection charges.
David Fisher heads
the OFTs review
THE FINANCIAL reporting
watchdog has kicked off a project
to try and help auditors to rebuild
trust in their profession.
On the same day that auditors
for Autonomy came under
scrutiny following Hewlett-
Packards $8.8bn (5.5bn)
post-acquisition writedown, the
Financial Reporting Council said it
wants to examine the skills and
responsibilities needed to publish
useful audits.
The regulatory body will also
consider allowing sector experts to
assist auditors in combing through
the accounts of particularly
complex firms such as banks or
insurers. The report will be
published by September 2013.
Plans to restore audit reputation
BY MARION DAKERS
SECURE Trust Bank, a subsidiary of
Arbuthnot Banking Group, yesterday
defied tough fundraising conditions
to place 20m of shares with new
and existing investors.
The bank, which is majority
owned by Arbuthnot Banking, said
it would use the funds to support
future growth and potential
acquisitions. It will also be used to
repay its existing subordinated debt
of 5m to Arbuthnot, reducing the
parent banks stake down from 75.5
per cent to 70.7 per cent.
The new shares were sold at
13.50, about twice the 7.20 price
paid for its shares when it floated
on the market one year ago.
This a 4.9 per cent discount to the
last closing price.
BY MICHAEL BOW
Secure Trust raises 20m
INVESTORS fear the Eurozone crisis is
not going away, despite European
Central Bank boss Mario Draghis
assurances that he will do everything
to help, according to a Fitch study
published yesterday.
And analysts from Swiss bank UBS
warned Draghis policies may be
making the crisis worse in the long
run by reducing the pressure for
troubled governments to reform
their damaged economies.
Draghi hopes to ease the massive
economic readjustment taking place
by holding down interest rates and
supporting banks but analysts fear
this simply postpones the inevitable
pain, dragging out the crisis.
Earlier this month Draghi insisted
his outright monetary transactions
(OMTs) which would see the ECB
buy Spanish government bonds if the
government asks for a bailout are
a fully effective backstop that is
devised to remove the tail risk for the
Eurozone while not removing
incentives for fiscal discipline.
But although 86 per cent of
investors told ratings agency Fitch
Draghi warned
his loose policy
worsens crisis
BY TIM WALLACE the OMTs and banking union are
important, 81 per cent say they are
not enough to bring an end to the
turmoil.
They still fear significant econom-
ic, financial and political risks
remain.
And UBS warned the policies could
even be making the crisis worse by
reducing incentives for vital reforms.
In Spain, the OMT has actually
reduced pressure to reform and
stalled a much needed aid request
from the government, said analyst
Matthew Mish.
Unfortunately, without market
stress tough decisions are rarely
enacted.
He added that the ECB is not alone,
as the Bank of Englands policies are
propping up inefficient zombie
firms those who cannot pay off
their debts and only survive thanks to
low interest rates thus slowing the
economy, and the US Federal Reserve
potentially fuelling a dangerous new
housing bubble with its loose
policies.
The inherent problem is that cen-
tral bank policies seem to reward
debtors, not creditors, he said.
Buzz
9Nov 10Oct 14Sep 17Aug 20Jul 22Jun
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-40
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20
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Amazon
Google
Starbucks
Index
9Nov 10Oct 14Sep 17Aug 20Jul 22Jun
10
-10
0
-20
20
30
40
50
60
70
Amazon
Google
Starbucks
WEDNESDAY 21 NOVEMBER 2012
14
NEWS
cityam.com
L
AST week executives from
Amazon, Google and Starbucks
appeared before the House of
Commons public accounts
committee to discuss the issue of
tax avoidance, which led to some
calls for consumers to boycott big
brands that are accused of not
paying their fair share.
But how is brand perception actu-
ally impacted by these sort of accu-
sations and subsequent political
grilling?
Back in April 2011 I looked at five
brands that had been targeted by
protesters over their tax arrange-
ments, such as Vodafone, Boots,
Tesco, BHS and Topshop.
The figures showed that there had
been no big change in their corpo-
rate reputations as a result of those
public protests.
Looking at the three US brands
questioned by the public accounts
committee, however, we see a more
mixed reaction from consumers.
Firstly, on buzz (which measurers
whether people have heard good or
bad news) there is a big drop for
Starbucks, from +1 to minus 29 in
the wake of the tax avoidance story
in the UK media.
The brand had slowly started to
recover before falling back again
after the appearance before parlia-
ment, and now stands at around
minus 33.
There was less of a drop for
Amazon and Google, however.
The biggish Google dip is largely
related to the premature release of
their financial results in October,
which also prompted a brief col-
lapse in the firms share price,
rather than any concerns about its
tax status in the UK.
We see a similar pattern on the
Index, which is a composite of six
key image measures including that
of corporate reputation. Starbucks
suffered a relatively steep decline
after the story broke, Amazon expe-
rienced a smaller dip while
Googles scores barely moved.
So why is there a difference
between the brands?
It could be down to the coverage,
it could be that Google fares better
because it doesnt so obviously have
a product that the average con-
sumer pays for, or it could be
because of the levels of built-up
brand equity.
Its possible that Starbucks suffers
more from the publics wrath
because it hasnt yet earned the
right to be given the benefit of the
doubt.
Stephan Shakespeare is the chief executive
of YouGov
BRAND
INDEX
STEPHAN SHAKESPEARE
Google is spared the publics anger over UK tax spat
SPAIN successfully shifted 5bn
(4.02bn) worth of short-term debt
yesterday, but a bond sale for the
Eurozone rescue fund was delayed
by Frances Monday night
downgrade.
The Spanish treasury sold
4.2bn worth of 12-month debt at
a yield of 2.797 per cent, down
from 2.823 per cent at the last
auction, but 713m of 18-month
bills went for 3.034 per cent,
marginally up on 3.022 per cent
last time. Still, the auction beat
the governments 3.5bn to 4.5bn
target, and the auctions were
heavily over-subscribed.
However the European Financial
Spain enjoys bond success but
rescue fund hit by France woe
BY BEN SOUTHWOOD Stability Facility (EFSF) suffered a
setback when its three-year euro
benchmark was delayed, after
France its second largest
guarantor was downgraded from
Aaa to Aa1 by Moodys.
EFSF chief financial officer and
deputy chief executive Christophe
Frankel played the delay down as a
technical error.
The timing of the EFSF three-
year euro offering is currently
subject to a technical issue related
to EFSFs deeds of guarantee, he
said in a statement.
Apparently agreeing that the
problem is not fundamental,
Moodys has kept its rating for the
benchmark at Aaa, maintaining its
existing negative outlook.
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VALUE fashion retailer New Look posted a 25 per cent rise
in underlying first half earnings yesterday, as it removed
costs and improved margins as part of a recovery plan
following a slump in earnings in 2011-12.
The firm, owned by private equity groups Apax,
Permira and founder Tom Singh, also said that its current
sales performance is now showing year-on-year growth. A
spokeswoman for New Look said the firm hoped to
refinance its net debt of 1.05bn within the next 18
months.
The firm reported earnings before interest, tax,
depreciation and amortisation of 86.9m in the 26 weeks
to 22 September, up from 69.4m last year.
New Looks earnings
rise by 25 per cent as
recovery plan pays off
BY CITY A.M. REPORTER
PREMIER Foods, the maker of Hovis
bread, announced yesterday it is to
close two bakeries and axe 900 jobs
as part of plans to overhaul its trou-
bled bread division and pay off debt.
The company said bakery sites in
Birmingham and Greenford will
close during the course of next year,
on top of the previously announced
planned closure of another Hovis
bakery in Hampshire.
It is also preparing to shut distribu-
tion sites in Birmingham, Greenford,
Mendlesham and Plymouth, result-
ing in a total of 900 jobs being cut
across its bread business.
Chief executive Michael Clarke said
decisions will not be taken lightly
but they are necessary if we are to
build a strong and successful future
for the bread division.
Premier, which also makes Mr
Kipling cakes and Loyd Grossman
sauces, said the restructuring will
help offset margin pressure caused
by the loss of a 75m contract with
Premier to axe
900 jobs across
bread division
BY KASMIRA JEFFORD
the Co-op.
The bread arm, which the group
separated into a new division in
August, has proved tricky for Premier,
which has had to manage high wheat
prices, costly logistics, and also
Britons eating fewer sliced loaves
prompting retailers to drop prices.
Premier said the closures will result
in a 28m charge that should be
recovered through site disposals.
The group has been selling non-core
businesses such as Hartleys jams and
its pickles and sauces arm to help cut
its debt pile.
The 1973 Hovis advert, directed by Ridley Scott, was once voted an all time favourite
Premier Foods PLC
20Nov 14Nov 15Nov 16Nov 19Nov
88
86
90
92
94
96
98 p 94.75
20Nov
WEDNESDAY 21 NOVEMBER 2012
15
NEWS
cityam.com
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BRITISH utility Telecom Plus
reported an eight per cent rise in
first-half profit yesterday as it
added more customers and said it
expects to post a record profit and
turnover for the year.
The company, which provides
gas, electricity, fixed line telephone
and broadband internet services,
said customer numbers rose by
22,657 to 438,146 during the six
months ended 30 September.
For the first half, Telecom Plus
reported a pre-tax profit of 12.1m,
up from 11.1m a year earlier.
Revenue increased 30 per cent to
210m. The company raised its
interim dividend to 13p from 10p a
year earlier.
Telecom Plus in
revenue jump
BY CITY A.M. REPORTER
BIG Yellow, the self-storage provider,
yesterday posted a 20 per cent jump
in half-year profits but warned that
the addition of VAT to storage costs
wil continue to weigh down
earnings growth in the short term.
Chairman Nicholas Vetch said the
group focus on London and the
south east, where it operates 58 of its
66 facilities, had helped it meet
challenges in the period including
higher interest costs and a subdued
economic environment.
Adjusted pre-tax profits rose to
13.9m in the six months to 30
September, up from 11.6m a year
earlier, as store revenues grew 11.5
per cent to 35.5m. Occupancy rose
to 68.5 per cent from 63.5 per cent.
Profits surge
at Big Yellow
BY KASMIRA JEFFORD
TO the Marriott hotel in Grosvenor
Square last night for the seventh
annual Women of the Future
awards.
The Citys fairer sex were celebrat-
ed at the black tie drinks and din-
ner do, and unsurprisingly there
was no shortage of both men and
women turning out to show their
appreciation for Britains outstand-
ing ladies aged 35 and under.
The Capitalist spotted dashing
Dragon and entrepreneur James
Caan chatting to one lovely lady
during business secre-
tary Vince Cables
speech.
Cable told the
room full of gath-
ered women that
he felt extremely
humbled to be
there when he
saw the vast
pool of talent
in the room.
Awards were
dished out to
g e o l o g i s t s
and doctors
but among our lovely banking ladies
being honoured it was Natwest port-
folio manager Lucy Ellidge winning
the Young Star award, Barclays small
business cards managing director
Lucy Johnson as highly commended
Businesswoman of the Future and
RBS taking the Corporate award.
Patron Cherie Blair was a no-show,
citing other commitments, however
founder of the awards Pinky Lilani
summed the night up best when she
said: These awards are incredibly
special because they celebrate
women still at the begin-
ning of their careers and
with the potential to go
even further. The
Capitalist could not
agree more.
The Movember boys in the lead from Bank of America Merrill Lynch: Credit structurer Ben
Spitfire Lanning (left) and senior vice president Matt Lip Luggage Lee (right)
Left to right: Lucy
Ellidge, portfolio
manager at
Natwest and
Barclays small
business cards
managing
director Lucy
Johnson
16
cityam.com
cityam.com/the-capitalist
THECAPITALIST
After the final approval
yesterday from shareholders to
merge commodities trader Glencore
and mining giant Xstrata into Glencore
Xstrata International, The Capitalist
has been pondering on other big firms
boasting tongue-twistingly long
names. Bank of America Merrill Lynch
rolls off the tongue a good deal
quicker than law firm Skadden, Arps,
Slate, Meagher & Flom LLP. However
neither can compete with Pittsburgh-
based law firm Holly, Kraft, Jacobs,
Wainwright, Deunster, Chattersworth,
Cravens, Zymbrowki, Langston,
Johnson, Tillerskein, Quoss,
Thompson & Dudley. Apparently the
partners were: Tired of trendy and
vacuous-sounding law firm names.
After a disappointing result for
Englands rugby boys last
weekend in their match against
Australia, the rugby Autumn
International series continues this
Saturday as England take on South
Africa at Twickenham. However eager
City betters could be warned about
taking on the spreads at bookmakers
Spreadex. The Capitalist hears the
firms latest addition to the sports
trading room is a new rugby trader. The
name of the gentleman in question just
happens to be Jonny Wilkinson. In a
case of double coincidence the firm
also has a Jon Terry among their staff,
unfortunately not a football trader -
nevertheless it has been cause for a
good chuckle on the trading floor.
WEDNESDAY 21 NOVEMBER 2012
EDITED BY CALLY SQUIRES
Got A Story? Email
thecapitalist@cityam.com
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BARELY more than a week left in
The Capitalists hunt to source
the fairest and furriest
moustache in all the City land.
As we are now past the halfway
point in our hairy little challenge,
it is time for an update.
The Bank of America Merrill
Lynch boys, who have banded
together on the fundraisers
official website as team Julios
Movembrs are shaping up well,
as photographic evidence of self-
styled Matt Lip Luggage Lee
Calling all Mo Bros - one week
left to send your best specimen
and Ben Spitfire Lanning
suggests.
Our Mo Bros sporting
handsome handlebars from
across the City have already
raised almost 90,000 in
sponsorship on
uk.movember.com
Remember it is not just for fun,
there are prizes to be won
courtesy of Lockonego Salon so
please send all entries to
thecapitalist@cityam.combefore
close of play on 30 November.
Cable and Caan
cheer City ladies
DAVID Camerons former media chief
Andy Coulson and Rebekah Brooks,
the former boss of Rupert Murdoch's
UK newspaper business, will be
charged with conspiring to pay
officials for private information on
the royal family, prosecutors said
yesterday.
The charges against Coulson relate
to his time as editor of the Murdoch-
owned News of the World tabloid.
Coulson and Brooks to be charged
over illegal payments to the MoD
BY CITY A.M. REPORTER
Since resigning from his Downing
Street post in 2011, Coulson has been
charged with conspiracy to hack into
phone messages, and perjury. He said
in a statement he would fight the latest
charges in court.
Brooks, 44, was charged with
conspiring to authorise payments of
around 100,000 to a member of the
Ministry of Defence to generate stories
and will appear at Westminster
Magistrates Court on 29 November. Her
lawyers were not immediately available.
WEDNESDAY 21 NOVEMBER 2012
17
NEWS
cityam.com
Rebekah Brooks and Andy Coulson deny the charges and are appealing
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Property magnate Uri Heller
calls for shareholder backing
URI Heller, the chief executive and
founder of real estate developer
Ablon Group, yesterday issued an
impassioned plea to shareholders
urging them to vote against plans
to remove him from the firm.
One of the companys major
shareholders and lender to the
firm, Volksbank Group, has
proposed removing Heller as
director from the company and
has won the backing of activist
investor Laxey Partners for the
plan.
BY MICHAEL BOW
Shareholders will vote at a
meeting to remove Heller, who
founded the firm in 1993 and
owns 28.65 per cent, next month.
Yesterday he issued a letter to
shareholders urging them to keep
him at the firm.
It is my duty to act in the best
interests of the company and its
shareholders and I believe that I
have always done so, he said.
But my devotion to the company
is even more fundamental than
that. I founded the company
nearly 20 years ago and I have
worked for it ever since.
Heller also accused Volksbank,
which owns 24.3 per cent of
Ablon, of making an offer to take
control of the firm without
making a takeover offer. It wants
to appoint different directors to
lead the firm.
On 12 November Laxey
Partners, which owns three per
cent, issued a call to arms to
fellow shareholders to remove
Heller from the company, citing
conflicts of interest between his
role as a shareholder and chief
executive. The vote is due to take
place on 5 December.
IN BRIEF
Baker & McKenzie looks to Korea
nLaw firm Baker & McKenzie said
yesterday it had applied to Korean
authorities to be allowed to open an
office in the countrys capital, Seoul.
South Korea opened its doors to
foreign law firms for the first time
earlier this year after agreeing trade
deals with the EU and the US. Pending
regulatory approval, Bakers office in
Seoul will be led by M&A partner Nam
Hung Paik.
Lottery runner sees record sales
nNational Lottery operator Camelot
said yesterday that ticket sales had
risen by eight per cent in the six
months to the end of September. The
privately-owned company put the
success down to online and mobile
gaming. Camelot lost a high court
case against Richard Desmonds
Health Lottery asking for its gaming
licence to be revoked in August, but
continues to pursue the matter.
Pensions minister attacks EU plan
nNew capital rules for final salary
pension schemes would add 150bn to
UK firms costs, pensions minister Steve
Webb warned yesterday. The European
Commission plans to regulate pensions
in the same way as insurers, making
funds hold more capital against
adverse events. But critics say the two
are not comparable, as insurers pay out
on sudden events, while pensions are
long-term products. The costly rules
would harm businesses ability to
invest, grow and create jobs, and many
more schemes could be forced to
close, Webb warned.
HOMESERVE, the home repairs
group currently being investigated
by UK regulators, yesterday stormed
to a 25.6m half year profit after
swivelling its focus off the UK market
towards selling to people overseas.
The group announced in May it
was being investigated by the
Financial Services Authority over its
UK telephone sales and marketing
tactics. Yesterday it said profits had
surged nine per cent on the back of
229.6m in revenues over the half
year ending 30 September as it
turned away from the UK market.
HomeServe, which offers emer-
gency home insurance, yesterday
reported that customer numbers in
the UK had plunged 500,000 to 2.5m
in the past six months and would
carry on falling.
Chief executive Richard Harpin
said: HomeServe is making progress
in transitioning its UK business to a
smaller, more customer focused
operation and has delivered good
growth in its international business-
es in the first half of the year.
The fall off in UK activity was offset
HomeServe up
after pivoting
away from UK
BY MICHAEL BOW
by strong growth in the US where
customer numbers increased 20 per
cent.
The company also boosted its bal-
ance sheet by taking over French firm
Domo last December, buying out the
remaining 51 per cent stake from
Veolia Environnement.
The purchase increased net debt to
78.1m, up from 36.6m over the six
months, but it also helped improve
HomeServes cash flow, sending free
cash flow from 2.3m to 10.3m at
the end of September.
HomeServe jumped more than ten
per cent on the FTSE yesterday clos-
ing up at 247.9p on the back of the
results.
Homeserve PLC
20Nov 14Nov 15Nov 16Nov 19Nov
230
220
225
235
240
245
250
255 p
247.92
20Nov
MORTGAGE firm Paragon
increased profits by 22.5 per cent
in the last 12 months, according
to full-year results published
yesterday.
The specialist buy-to-let and
consumer finance group
reported record pre-tax profit of
95.5m, up from 80.8m in the
previous year.
Paragon benefited from bigger
lenders cutting back credit,
allowing it to expand.
The results allowed it to up the
final dividend to 4.5p per share,
up from 2.65p last year. Added to
Paragon profits soar as bigger
lenders cut back on buy-to-let
BY TIM WALLACE the 1.5p given out earlier this
year, that takes the total to 6p.
But despite rising profits and
dividends, analysts warned
Paragon is still not a healthy
investment prospect.
Paragon is a high risk business
that has become effectively if not
technically insolvent twice, said
Numis James Hamilton, slapping
a sell rating on the firm.
Paragon is highly leveraged
and despite this it generates a
low return on equity (ROE). The
underlying ROE is now just under
nine per cent which we believe is
dramatically below the cost of
equity.
WEDNESDAY 21 NOVEMBER 2012
19
NEWS
cityam.com
Paragon chief Nigel Terrington said the firm is well funded for further lending growth
BUSINESS research and development
boomed in the UK between 2010 and
2011, according to data out
yesterday, despite the countrys slide
back into recession by the end of the
year.
Total business R&D spending was
17.4bn in 2011, eight per cent
higher in cash terms than in 2010,
and six per cent higher in real
terms, the Office for National
Statistics said.
The biggest gains came from a 19
per cent boost to the IT sector, and a
23 per cent hike in car industry R&D
spend, as the country made its way
toward becoming a net exporter of
cars for the first time in decades.
Spending in the defence and
pharmaceutical sectors also
accounted for a large portion of the
increase.
The data provided a clear picture
of how important foreign
investment has been for recent UK
economic success, with non-UK-
owned firms spending more than
half of the total on R&D for the first
time ever. UK firms spent 6.4bn
out of the total 8.7bn spent in 1993,
while foreign-owned firms made up
8.8bn of the total 17.4bn spent in
2011 ahead of the 8.6bn spent by
businesses with UK-resident owners.
UK firms hike
R&D spend in
export sectors
BY BEN SOUTHWOOD
MORTGAGE lending climbed to an
11-month high in October, according
to data out yesterday, as the Funding
for Lending Scheme (FLS) entered its
third full month of activity.
Gross mortgage loans hit 12.9bn
in October, data from the Council of
Mortgage Lenders (CML) showed, up
13.3 per cent on September, and up
4.2 per cent on October last year.
House purchase and remortgage
activity both appear to have picked
up recently, and this should be sup-
ported by an improvement in the
availability and pricing of mort-
gages, said CML chief economist Bob
Pannell, who put this improvement
down to the governments scheme.
FLS is likely to have made an early
positive impact, he claimed, help-
ing to counter some of the negative
pressures associated with a protract-
ed and weak economic recovery.
This means gross lending is run-
ning at an average of 11.9bn per
Mortgage loans
see Funding for
Lending boost
BY BEN SOUTHWOOD
month so far this year, up from
11.7bn over the whole of last year,
and 11.3bn during 2010.
But the Bank of England has consis-
tently forecast that FLS would only
have its full impact on the mortgage
market by the beginning of 2013.
Mark Harris, boss of SPF Private
Clients, a mortgage broker, said he
expected the mortgage market to
ease further and further over the
coming year. This bodes well for next
year as lenders saturate the low
loan-to-value (LTV) market with a
plethora of rock-bottom rates, they
will be forced to turn to the higher
LTV bracket, he predicted.
But Howard Archer at IHS Global
Insight disagreed, warning that the
pick-up could be illusory. Any signs
of a pick-up in housing market activi-
ty need to be treated with consider-
able caution, he said. As firstly there
have been previous false dawns
recently, and secondly housing mar-
ket activity remains very low com-
pared to long-term norms.
WEDNESDAY 21 NOVEMBER 2012
21
NEWS
cityam.com
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A TOP Federal Reserve official
yesterday challenged an idea that is
gaining traction at the US central
bank, arguing that adopting so-
called thresholds to guide policy
would be a risky move that fails to
take account of broader economic
conditions.
Richmond Fed president Jeffrey
Lacker also floated the idea that
legislation might be necessary to
limit the Feds emergency lending
activities, if the central bank cannot
limit itself.
But Lacker spent much of his
speech pouring cold water on an
idea publicly endorsed by a few Fed
policymakers, including influential
vice chair Janet Yellen: setting
specific rates for unemployment and
inflation as markers for when the
Fed would consider lifting rates.
Feds Lacker pours cold water on
monetary policy thresholds plan
BY CITY A.M. REPORTER Crisp numerical thresholds may
work well in the classroom models
used to illustrate policy principles,
but one or two economic statistics
do not always capture the rich array
of policy-relevant information about
the state of the economy, Lacker
told the Shadow Open Market
Committee.
Lacker, an inflation hawk who has
dissented at every Fed policy-setting
meeting this year, said placing great
weight on the jobless rate alone can
easily lead you astray, given the
complexity of factors that influence
the labour market. Adopting an
inflation threshold, in particular,
essentially requires that we lose a
measure of credibility before it can
be invoked, he said. This is because
even if the unemployment rate
remains stubbornly high, a rise in
inflation would be necessary to
reverse monetary policy, he added.
Bank of Japan hits out at critics
of its hard-won independence
THE BANK of Japan yesterday stood
resolute against calls to flood the
economy with money in order to
achieve its inflation target, stressing
the importance of its political
independence.
It kept its asset buying
programme steady after last
months increase to 91 trillion yen
(0.7 trillion), dismissing calls for
unlimited quantitative easing from
the Bank from opposition leader
Shinzo Abe, widely tipped to
become the countrys next premier
BY BEN SOUTHWOOD
in Decembers election. Abe, leader
of the Liberal Democratic Party, had
also proposed reviewing legislation
surrounding the central bank.
Central Bank independence is a
system created upon bitter lessons
learned from the long economic
and financial history in Japan and
overseas countries, said Bank
governor Masaaki Shirakawa at a
news conference.
Any debate on revising
something like the BOJ Law, which
lays the foundations of Japans
economic and financial system,
must be done carefully, spending a
good amount of time.
Shirakawa has not just had to
face down opposition critics the
government has joined Abe in
calling for more intervention,
though it has not gone as far as
recommending the radical policies
favoured by the opposition leader,
which include boosting the
inflation target to three per cent
and guaranteeing bonds to fund
fiscal stimulus.
But analyst Yasuo Yamamoto at
Mizuho Research Institute predicted
the pressure would force the BOJ to
act in their next meeting.
RESEARCH AND DEVELOPMENT ROCKETS DURING 2011
COMPUTER
PROGRAMMING & IT
MOTOR VEHICLES
& PARTS
PHARMACEUTICALS
INDUSTRY
293m 19% 288m 23% 169m 4%
FOREIGN-OWNED BUSINESSES SPEND MORE THAN UK-OWNED FIRMS FOR THE FIRST TIME
RESEARCH AND DEVELOPMENT SPENDING BOUNCES BACK FROM CRASH
10
9
8
7
6
5
4
3
2
1
0
Cash spending on R&D in the UK, bn
SOURCE: OFFICE FOR NATIONAL STATISTICS
SOURCE: OFFICE FOR NATIONAL STATISTICS
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
4
6
8
10
12
14
16
18 R&D spending by UK-located firms, bn
CASH TERMS
REAL TERMS
UK REST OF THE WORLD
2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987
BUILDING permits, housing starts
and housing completions in the
United States grew rapidly into
October, according to statistics out
yesterday, signalling continued
recovery in the US housing market.
Permits were up 29.8 per cent in
the year to October, the data from
the US Housing Department and
Census Bureau showed, even after
a 2.7 per cent fall into September.
Housing starts grew some 3.6 per
cent between September and
October, hitting a four year high of
894,000, to cap off the 41.9 per
cent boost seen since October last
year. And to finish the picture,
US housing market continues
to bounce back from collapse
BY BEN SOUTHWOOD
housing completions rocketed up
14.5 per cent between September
and October, making them 33.6
per cent higher than just a year
ago.
The Commerce Department said
very little of the boom could be
attributed to the impact of
superstorm Sandy which made
up just eight per cent of overall
housing starts, and where new
building actually fell 6.5 per cent.
This came as weekly chain store
sale data also revealed an
improvement on last years
figures. Sales were up 2.5 per cent
on the year, the data from an
industry body revealed, but down
0.3 per cent over the week.
GERMANY and France have reached
an agreement under which each gov-
ernment will hold a 12 per cent stake
in aerospace and defence group
EADS, a German newspaper reported
yesterday.
Citing government sources,
Handelsblatt said that the agree-
ment would mean governments,
including Spain which owns 5.5 per
cent, would in the future hold rough-
ly 30 per cent in the parent of plane-
maker Airbus.
Germany, which has never held a
substantial direct stake in EADS, has
been preparing the purchase of
shares held by carmaker Daimler
after talks on a $45bn (28.3bn)
merger between EADS and BAE
Systems collapsed last month.
Already concerned about the
French gaining a step up on them
within Airbus, the Germans vetoed
the defence and aerospace deal out
of concern that their influence
would be reduced further in the
Germany and
France to hold
12.5pc in EADS
BY HARRY BANKS
combined group.
Daimler currently controls a 22.5
per cent voting stake in EADS, hold-
ing 15 per cent directly and a further
7.5 per cent belonging to a consor-
tium of private and public sector
investors.
Under the current shareholder pact
between France and Germany, this is
counterbalanced on the French side
by a 15 per cent government holding
and 7.5 per cent stake owned by
media firm Lagardere.
EADS declined to comment on the
report.
IN BRIEF
Reckitt close to Schiff takeover
n Reckitt Benckiser said yesterday it
looked forward to clinching a deal to
buy US vitamin maker Schiff Nutrition
after rival bidder Bayer announced it
would not increase its offer. Reckitt last
week trumped Bayer's $1.2bn (754m)
agreed deal to buy Schiff with a higher
offer of $1.4bn. Our original tender
offer still stands and we look forward to
reaching an agreement, a
spokeswoman for the UK consumer
goods group said. We are in
communication with them (Schiff), she
added, while declining to go into further
details.
Diageo tender offer next year
n Diageo will launch a mandatory share
tender offer to buy up to 26 per cent
additional stake in India's United Spirits
from public shareholders on 7 January,
the manager to the offer said in a notice
to the Bombay Stock Exchange. Earlier
this month, Diageo agreed to buy a
majority stake in United Spirits,
controlled by Indian businessman Vijay
Mallya, for $2.1bn, fuelling a push by the
world's biggest spirits group into fast-
growing markets. The tender offer will
close on 18 January, JM Financial said in
a notice to the exchange.
ITC to review Samsung v Apple
n Samsung was handed a boost in its
ongoing patent dispute with Apple
yesterday when the US International
Trade Commission (ITC) said it would
review a judges decision earlier in the
year that Apple did not copy Samsung
technology in its products. The ITC has
the power to ban sales of products if
they are found to infringe on intellectual
property, so could potentially order the
iPhone and iPad to be removed from US
shelves. It will report back on 14
January.
Dialight leaps on new LED orders
n Shares in LED maker Dialight rose
more than six per cent yesterday as the
Newmarket-based company said it had
won a major contract with a US power
plant operator for more than 1,000 LED
lighting fixtures. The order has a value
of around 400,000. This order signals
further penetration of the clean energy
market and is a clear illustration of how
our lighting fixtures can be used in the
most diverse of environments,
Dialights chief executive Roy Burton
said yesterday.
WEDNESDAY 21 NOVEMBER 2012
22
NEWS
cityam.com
SINGAPORE commodities trader Olam International yesterday defended its accounting
practices after attacks by short-seller Muddy Waters. We are dismayed at the nature and
lack of substance of these assertions and opinions about Olam's financial position,
particularly as we were not contacted in advance by Carson Block or anyone else from Muddy
Waters," Olam, led by Sunny Verghese, said in a statement.
OLAM BATTLES MUDDY WATERS ACCOUNTING CLAIM
TECHNOLOGY group Halma hiked
its dividend seven per cent
yesterday, marking the 34th
consecutive year it has raised the
shareholder payout by more than
five per cent.
The group reported a six per
cent jump of adjusted pre-tax to
60.8m for the six months to
September, on revenues up six per
cent to 298.1m.
FTSE 250-listed Halma was
boosted by strong growth in Asia
Pacific, with revenue up 17 per
cent. Weak demand in the UK and
Europe was offset by US growth.
Halma hikes
its dividend
BY CATHY ADAMS
INDUSTRIAL chain supplier Renold
yesterday appointed a new chief
executive as it reported falling
revenue and profits.
Robert Purcell will take the role
of chief executive from 1 May,
following the retirement of Bob
Davies at the end of the year.
Underlying revenue fell six per
cent to 96.7m over the six months
to September, down from 105.5m
in the previous half year, as the
firm was hurt by falling demand
from Europe.
Pre-tax profit fell to 2.1m from
3.7m.
Renold hires
a new chief
BY CATHY ADAMS
European Aeronautic Defence and Space Company
20Nov 14Nov 15Nov 16Nov 19Nov
25.2
25.0
25.4
25.6
25.8
26.0
26.2
25.49
20Nov
WEDNESDAY 21 NOVEMBER 2012
23
LONDONREPORT
Bernanke and
HP woes halt
rally in stocks
W
ALL Street halted its two-day
rally yesterday, after Federal
Reserve Chairman Ben
Bernanke said the central
bank lacks tools to cushion the US
economy from the impact of the
fiscal cliff.
The days biggest disappointment
was Hewlett-Packard shares, which
sank to a 10-year low after the comput-
er and printer maker swung to a
fourth-quarter loss and announced a
$8.8bn charge related to accounting
improprieties. The stock slid 12 per
cent to close at $11.71.
Bernanke, in comments before the
Economic Club of New York, said the
Fed does not have the ability to offset
the damage that would result if politi-
cians fail to strike a deal to prevent a
series of mandatory tax increases and
spending cuts scheduled to go into
effect early next year.
The statement caused a downdraft in
the market, though the equity market
cut most of its losses before the end of
the day.
Stocks had rallied for the last two ses-
sions after Washington politicians
sounded an encouraging note that a
deal to avoid the US fiscal cliff could be
reached. The gains followed two weeks
of sharp losses that pushed the S&P
500 down through the 200-day moving
average, a key benchmark of the mar-
ket's long-term trend.
The S&P ended yesterday near that
level, which was 1,382.68.
The Dow Jones industrial average
slipped 7.45 points, or 0.06 per cent, to
12,788.51 at the close. But the
Standard & Poors 500 Index edged up
0.93 of a point, or 0.07 per cent, to fin-
ish at 1,387.82.
The Nasdaq Composite Index inched
up 0.61 of a point, or 0.02 per cent, to
close at 2,916.68.
U
K shares reversed early losses
yesterday, helped by the
completion of the long-awaited
takeover of miner Xstrata by
commodities trader Glencore which
boosted both stocks.
Xstrata led the risers, adding 3.1 per
cent, after its shareholders approved the
$31bn deal which had been on the cards
ever since Glencore listed last year.
Mining stocks, which were down 0.5 per
cent at their session low at 2.45pm,
rebounded to finish 0.5 per cent up fol-
lowing the news.
We consider the long-term investment
case for the merged Glencore Xstrata to
be compelling, analysts at Jefferies said
in a note, reiterating their buy recom-
mendation on both stocks. Glencore
gained 1.6 per cent, with both stocks trad-
ing over double their average 90-day
volume.
At the close, Britains FTSE 100 was up
10.44, or 0.2 per cent, at 5,748.10, despite
hitting an intraday low of 5,706.70 in
morning trading.
While the materials sector was support-
ed by Xstrata and Glencore, other main
gainers were defensive sectors.
Telecoms led sectoral risers, pulled up
by heavyweight Vodafone, which rose 1.1
per cent. It added 3.5 points to the index,
the most by a single contributor.
Its got an eight per cent yield, and the
fact that its one of the outperformers
today I think is quite telling, that people
are starting to feel comfortable with it
again, Nick Xanders, head of European
equity strategy at brokerage BTIG, said.
The stock had lost 18.8 per cent in three
months between the middle of August
and the middle of November.
Glenstrata merger boosts mining
stocks as FTSE pares early losses
BESTof theBROKERS
Exor SpA
14Nov 15Nov 16Nov 19Nov 20Nov
19.75
19.25
19.50
18.75
19.00
18.50
18.37
20 Nov
EXOR
UBS has downgraded the
Fiat majority-owner from
buy to neutral on the
back of a downgrade to
Fiat. Its target price for
Exor is now 20, from
22.40, as Fiat raises
cash to buy Chrysler.
DASHBOARD CITY
NEW YORK
REPORT
YOUR ONE-STOP SHOP FOR JOB MOVES,
BROKER VIEWS AND MARKET REPORTS
cityam.com
FTSE
20Nov 14Nov 15Nov 16Nov 19Nov
5,800
5,775
5,750
5,725
5,675
5,650
5,625
5,700
5,748.10
20 Nov
Compass Group PLC
14Nov 15Nov 16Nov 19Nov 20Nov
p 710
700
705
685
690
695
709.00
20 Nov
COMPASS
Investec has thrown its
weight behind the
catering giant, raising its
target price to 800p
while reiterating a strong
buy recommendation.
Further growth still lies
ahead, Investec reckons.
Blinkx PLC
14Nov 15Nov 16Nov 19Nov 20Nov
p 82.5
77.5
80.0
70.0
72.5
75.0
65.0
67.5
67.75
20 Nov
BLINKX
Citi has downgraded the
video search engine to
neutral with a price
target of 90p. Citi is still
upbeat about Blinkxs
medium run prospects
but feels that valuation
is up with events.
State Street
Simone Vroegop has been
appointed head of consultant
relations for Europe, the Middle
East and Africa at the financial
services provider. She was
previously vice president and
head of business development
for the companys global services
business in the Amsterdam
office.
Charles Russell
Shahram Taghavi has been appointed head of immigration
at the law firm. He joins from Lewis Silkin, the law firm,
where he was deputy head of immigration. Taghavi has
also worked at Doughty Street Chambers, and held a
teaching post at the School of Oriental and African Studies.
Actis
Adiba Ighodaro has been made a partner in the private
equity firms investor development group. She has held a
number of roles in CDC Group, Actiss parent company,
including head of West Africa.
Withers
Graham Elliot has been appointed as a VAT consultant at
the law firm. He joins from Haysmacintyre, the accountancy
firm, where he was a partner. Elliot has a particular
specialism in issues affecting the real estate and charities
sectors.
Stephenson Harwood
Marta Garcia has been appointed as a competition partner
in the law firms corporate practice. She joins from Clifford
Chance, where she was a senior associate. Garcia has also
worked at Baker & McKenzie.
SNR Denton
Nilo Effori has been made an associate in the law firms
sports group. He joins from Biazzo Simon Avogados, the
Brazilian law firm, where he was head of sports law.
WHOS SWITCHING JOBS Edited by Chris Harlow
+44 (0)20 7092 0053
morganmckinley.com
SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT
CITY MOVES
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W
HAT is the connection
between executive pay,
petty crime, and
plagiarism by students?
Economics can help us
with the solution. It all links back to
the concept of externalities.
To illustrate the idea, economists
use the example of a factory, which
imposes costs on others through
pollution. But Thomas Schelling, a
Nobel Prize winner, extended it to
the social domain 40 years ago in his
paper Hockey Helmets, Concealed
Weapons and Daylight Saving Time:
Binary Choice with Externalities. The
idea is that the impact of a social
W
HEN The Whos Roger
Daltrey first sang I hope I
die before I get old, he was
probably not planning on
receiving the winter fuel
allowance. Yet 47 years later, at some
stage this month a 200 cheque from
the UK taxpayer will drop through his
letterbox.
Daltrey is one of a growing number of
people born since the mid-1940s who
are at or are approaching the official
retirement age. There are so many baby
boomers that, between 2010 and 2015,
the number of people over the age of
65 will have increased by 1.3 million. By
2050, for every retired person there will
be two and a half people of working
age, down from four today.
Demographic changes provide some
benefits. People now entering retire-
ment are healthier, wealthier and
more active than previous generations.
But there are also costs. Ageing makes
cityam.com/forum
THEFORUM
Twitter: @cityamforum on the web: cityam.com/forum or by email: theforum@cityam.com
Agree? Disagree? Got a sharp comment?
The Forumwants you to join the debate.
Top responses will be reprinted in The Forum.
24
WEDNESDAY 21 NOVEMBER 2012
PATRICK NOLAN
Lesson from Australia: Retirement
benefits dont have to bankrupt us
much of the existing welfare state
unaffordable. Money is already a prob-
lem for the government. An older pop-
ulation will make this problem worse.
The welfare state was designed for a
young and growing population. Like a
pyramid scheme, retiree entitlements
would be funded by younger workers,
who would in turn receive benefits
funded by the next generation. But,
with an increasing share of the popula-
tion receiving benefits and a decreas-
ing share paying for them, the pyramid
is being turned on its head.
The situation is not hopeless, howev-
er. Experience of reform in countries
like Australia shows that the UK could
build a welfare state that not only pro-
vides for its citizens but also future-
proofs the economy against
government deficits and debt.
Like the UK, Australia guarantees all
citizens health cover and a secure
retirement income. But unlike the UK,
the cost of welfare is more evenly
shared between Australian citizens and
the government. Australian citizens
pay for nearly a third of health care
themselves. They contribute nearly 10
per cent of their income towards pri-
vate pensions. Four in five Australian
pensioners receive a targeted pension.
More even sharing of costs has many
advantages. It makes public pro-
grammes more affordable and can
increase the options available for help-
ing people in retirement. It also has
important political effects. Stronger
private programmes create a more
durable consensus that funding wel-
fare is not just the job of government.
Without this consensus, the UK will
continue to face pressure to expand its
welfare state. Australias broader fund-
ing base allows it greater flexibility to
introduce pro-growth policies, like a
more competitive tax system.
The government has ducked the issue
of long-run affordability. A more gener-
ous indexation of the state pension has
offset savings from bringing forward
the increase in the retirement age. The
challenge of funding long-term care
remains elusive and poor value for
money spending like the winter fuel
allowance, free bus passes and TV
licences remains off limits for this
Parliament at least.
The temptation for David Cameron
will be to put off dealing with these
challenges, but this will only make
reform harder. Not only is the number
of people over 65 increasing, but the
elderly are by far the most likely to
vote. This gives the grey lobby immense
power, and this power is only going to
increase. As Reform has shown, while
41 per cent of the voting population
was aged over 55 in 2010, based on cur-
rent turnout rates this will grow to 45
per cent by 2020.
The changes required to make the
welfare state affordable are not easy:
people saving more for retirement,
scrapping the winter fuel allowance,
free bus passes and TV licences, greater
use of equity in homes to fund long-
term care, health services being moved
out of hospitals and a greater require-
ment for private health insurance. But,
as Australia shows, these changes
would put the welfare state on a more
sustainable footing.
Dr Patrick Nolan is the chief economist at
the independent think tank Reform. Its report
Entitlement Reform is available at
www.reform.co.uk
choice can be magnified. Behaviour,
whether good or bad, may be copied
and generates social externalities.
In this vein, two Italian
economists, Claudio Lucifora and
Marco Tonello, have just published a
study on cheating in exams. They
found that the more people do it,
the more likely it is that yet more
will follow the example. A snowball
can turn into an avalanche.
The authors trace the origins of a
wave of plagiarism back to the
classroom, to things which by
themselves seem innocuous, like
teachers tolerating minor homework
copying. Its the same thing as the
broken window effect on petty
crime. Most crime takes place in
poor neighbourhoods, which tend to
be a run down. But rigorous
enforcement of standards, like
mending broken windows quickly,
can help reduce much more serious
levels of crime.
Another example is the executive
pay boom that began in the 1980s.
One notable case was Cedric Brown,
chief executive of the newly-
privatised British Gas, who increased
his pay to the then outrageous level
of 400,000 a year. Despite public
opprobrium, he got away with it and
other executives saw that he had.
Politicians may now demand
companies be more socially
responsible. But we are now a very
long way down the track. Virtually
the only focus of corporations is to
maximise shareholder value and
executive rewards.
Once the genie is out of the bottle,
it is difficult to put back in. As such,
the instinct of government to do
more and to regulate more is wrong.
We dont need more government.
We need smarter government, using
the waves of information on the web
and modern tools of analysis to
identify potentially harmful trends
at an early stage. Fixing the broken
window does not need armies of
bureaucrats. It just needs to be done
early enough.
Paul Ormerod is an economist at
Volterra Partners, a director of Synthesis
and author of Positive Linking: How
Networks Can Revolutionise the World.
AGAINST
THE GRAIN
PAUL ORMEROD
Cheating students hold the key to better government decision-making
Your c
25
WEDNESDAY 21 NOVEMBER 2012
The Forum is open for you to take part. Got a sharp comment on
one of todays columns? Do you have another subject you want
to share your opinion on? We want to hear your views.
Email theforum@cityam.com or comment at cityam.com/forum
Practical pensions
[Re: The Ostrich Generation, yesterday]
I imagine that one of the main reasons
young people are not placing much faith in
the future of their pensions is their lack of
confidence and certainty about the future
more generally. If someone is in their mid-
20s, three or four decades is a long way
ahead. And it is highly like that current
young professionals will see their statutory
retirement age go up significantly. This
could mean that a person working in, for
example, financial services today will end
up working for 10 or 15 years longer than
anticipated. Its also very difficult to save at
the moment. Current incomes are stagnat-
ing, and once individuals have writen off
necessary expenses, there is hardly any-
thing left for the following year, let alone
for retirement. So perhaps a current lack of
saving is just a case of young people trying
to be practical.
Krishnan Unni Madathil, KPMG
M
OODYS downgrade of
France this week was
hardly a surprise. Although
blamed on the risk of
Greece leaving the
Eurozone, Frances structural
challenges its declining
competitiveness, high
unemployment, public debt and
market rigidity have long been
worsening.
The Eurozone crisis has only high-
lighted a more gradual decline in the
countrys ability to compete interna-
tionally. Frances current account
has deteriorated since 2000 from a
surplus of almost 3 per cent of GDP
in 2000 to a deficit of 2 per cent in
2012. And even when many peripher-
al European countries improved
their trade balance sharply after
2007, Frances has worsened.
The countrys rigid and complex
regulatory and fiscal environment
has done little to fix this. According
to a recent study by the IFRAP
Foundation, a French company is
now subjected to 153 different direct
or indirect taxes and levies, com-
pared to only 55 in Germany.
And worse, Frances politicians
have failed to make the difficult deci-
sions needed to resolve the situation.
Francois Hollandes government (like
that of his predecessor, Nicolas
Sarkozy) has been reluctant to carry
out vital labour market reforms.
Opening up closed professions,
reducing high taxation of labour and
introducing some flexibility into the
market have all been avoided. In his
imposition of punitive wealth taxes,
Hollande has in some ways made
Frances situation worse.
Although, market reaction to
Moodys downgrade has been muted,
TOP TWEETS
Ive always found the cheapest energy tariff
by looking at them all choosing the cheapest.
@robinbogg
Remember that within the rules is accept-
able for MPs expenses, but immoral for pri-
vate tax arrangements.
@obotheclown
France levies a 75 per cent per cent tax on high
earners. Unsurprisingly growth is slow.
@GenNerd
Should the government consider lowering
the level of tax relief on private pensions?
YES
Britain could raise up to 1.5bn by limiting tax relief on the very
largest personal pensions those built on lifetime savings of more
than 1m. This would affect only very wealthy savers and seems
necessary in these straitened times, when deep welfare cuts are
underway. The money saved from pension tax relief could help
people on lower incomes fund extra childcare that allows them to
work more, helping them earn a greater share of national growth.
This option was recommended last month by the Commission on
Living Standards, whose members included the chairman of Lloyds
Bank and the managing director of British Gas. The commission
agreed that such generous relief is no longer fair or efficient in an
economy where the poorest are falling behind and where every
penny of public spending must be justified.
Vidhya Alakeson is deputy chief executive of the Resolution
Foundation.
Vidhya Alakeson
NO
Jason Hollands
Egged on by the wealth tax enthusiasts in the coalition, George
Osborne is mulling a further reduction in the annual pension
contribution allowance from 50,000 to 40,000. Should he do
so, he will reduce one of the few legitimate avenues for easing the
burden of what are currently highly punitive income tax rates.
While 50,000 per annum is undoubtedly a sizeable sum for
most, the reality is that many middle class professionals have to
make sizeable contributions in the years running up to retirement,
simply to catch up after years of funding children through
education and paying off mortgages. Pulling the door even tighter
will do little to encourage saving at a time when investing in
pensions is already at its lowest level for a decade. Constantly
changing the rules simply undermines confidence in the pension
system.
Jason Hollands is managing director at Bestinvest.
RAPIDresponses
French downgrade
wasnt unexpected
previous instances suggest that such
inaction is dangerous. It took 10
years for Finland to regain its
AAA/Aaa rating, while Sweden strug-
gled for 11, Denmark for 15 and
Australia for 17 years. And they were
only able to do so by implementing
serious structural reforms, adopting
heavy-handed pension changes,
across-the-board cuts to social bene-
fits and reduced capital spending.
There is no shortage of advice.
Louis Gallois, former chief executive
of EADS, recently argued that the
French economy is in need of a com-
petitiveness shock. He proposed a
30bn (24.1bn) reduction in the
social charges paid by corporations
in order to improve Frances interna-
tional competitiveness. While
Hollande has since unveiled a 10bn
tax credit for companies in 2013,
with a further 5bn promised in the
next two years, the government is
still displaying none of the required
urgency.
The sad truth is that the French
people are not yet prepared for diffi-
cult decisions. This rating down-
grade could present the government
with a good opportunity to really
push through difficult decisions. But
only if it chooses to do so.
Yannick Naud is a portfolio manager at
Glendevon King Asset Management and a
former parliamentary candidate for the
Mouvement Democratique (MoDem) party.
YANNICK NAUD
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W
HEN a stagnant economy
meets a turbulent political
environment, expect
volatility. Traders spying an
opportunity might want to cast their
eyes to the Land of the Rising Sun,
Japan.
Over the last two decades, yen bears
have been brutally battered as the cur-
rency has soared. Since 2007, dollar-
yen has fallen by over 60 per cent.
However as the economy enters anoth-
er period of gloom, and the Bank of
Japan moves towards even looser mon-
etary policy, the yen bears may yet still
have their day.
JAPANS TROUBLED ECONOMY
The outlook for the worlds third
largest economy looks glum: output
contracted by 0.9 per cent in the third
quarter (3.5 per cent contraction,
annualised), and Japan is likely to fall
into its fifth recession in 15 years.
The country has a gargantuan
national debt, around 230 per cent of
GDP the largest in the world.
Channelling funds from the private
into the sovereign sector has created
deflation, according to a note from
Morgan Stanley. Deflation has allowed
Japan to sustain this debt. A combina-
tion of low interest rates and a defla-
tionary environment has created
positive real yields attractive to
investors. This, however, comes at the
expense of making the total burden of
Japans debt mountain even worse.
And demand for yen has inevitably
soared due to Japans role as a funding
currency and safe-haven, as traders
fled from the euro and more risky
assets. This has added to the pressure
facing export dependent corporates,
whose goods and services have become
more expensive to foreign buyers.
Consequently, exports have slumped,
and Japan posted a current account
deficit in September the first since
modern records began in 1985. Some
of this slump can be attributed to ten-
sions with China, a key trading part-
ner, over the sovereignty of the
Senkaku Islands (Diaoyu Islands).
Chinese consumers subsequently boy-
cotted Japanese goods.
TSUNAMI OF STIMULI
But things could soon change. Caving
to pressure from the opposition, Prime
Minister Yoshihiko Noda has called a
general election for 16 December. If, as
polls suggest, Shinzo Abe of the Liberal
Democrat Party triumphs, he will be
the eighth Japanese Prime Minister in
the last 10 years.
Abe, himself a former Prime
Minister, is basing his campaign on a
pro-inflation platform, favouring an
activist monetary policy. He has hinted
that he will strong-arm the Bank of
Japan into targeting 3 per cent infla-
tion, as well as pushing the base rate
towards or below zero. The upshot
could be tsunamis of potentially
unlimited monetary easing, adding to
the 91trn (691bn) that the Bank of
Japan has injected into the economy
via asset purchases.
A weaker yen could help to turn
Japans election
is likely to bring
weakness in yen
around the Japanese economy, boost-
ing exports as well as domestic
demand. However, Abes comments
have cast a long shadow over the Bank
of Japans independence, and there
are questions whether such policies
can work. The Banks governor
Masaaki Shirakawa said that a policy
targeting 3 per cent inflation is unre-
alistic and would have a negative
impact on the economy. But Kathleen
Brooks of Forex.com says the markets
are ignoring that.
As it is, the Bank has struggled to
meet its current target of 1 per cent
inflation. Although it remains com-
mitted to overcoming deflation, this
week it announced that it would keep
its base rate and asset purchase pro-
gramme where it is.
Japans economy has a mountain to climb
Japanese Economic Growth
2006 2008 2010 2012
-4.0
-3.0
-2.0
-5.0
-1.0
0.0
1.0
2.0
3.0
%GDP
S
o
u
r
c
e
: M
a
r
k
i t
/
E
c
o
W
i n
A devalued currency may help the Japanese
economy to grow, says Yogesh Chandarana
WEDNESDAY 21 NOVEMBER 2012
26
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Brooks thinks there is scope for fur-
ther easing. They havent thrown the
kitchen sink at it, she says. It seems
to be quantitative easing in incremen-
tal steps, rather than the wham, bam,
thank you maam of the Fed, which is
what we could get with Abe.
SHORTING YEN
So with the yen lurking towards seven-
month lows against the dollar.
Uncertainty over the role of the Bank
of Japan could have the impact of
increasing yen volatility. Morgan
Stanley has said that additional pres-
sure on the central bank to act more
aggressively should catalyse sustained
yen weakness, and their target is for
dollar-yen to reach 92 next year.
Brooks has a medium-term price tar-
get of 84, but she warns that a lot still
depends on the US. In the near term,
the outlook for dollar-yen is based on
how the dollar moves. If the US
Federal Reserve took a hawkish tone,
for example, by hinting at a slowing of
its easing programme, we could see
the yen trading within a range.
Therefore, it is important to manage
risk, potentially by placing a stop loss
at the 79.50 level.
The road to Japan is littered with the
bloody corpses of yen bears who have
fallen on their on swords over the last
two decades. The yens relentless
strengthening has punished them all.
However, the prospect of Abe in the
premiers seat could sharpen their
resolve. The yen bear may yet have his
day.
Dollar-yen, 10 years
Sep2012 Sep2003 Sep2006 Sep2009
80
70
90
100
110
120
130
S
o
u
r
c
e
: F
T
S
E
C
u
r
e
x
I
F YOURE prepared to spend up
to 5,000, theres still time to get
front row seats to a celebration
of 50 years of the greatest rock
and roll band in the world the
Rolling Stones are playing at the O2
at the end of November. But you
may be unaware of an arguably
more significant anniversary that
has already been celebrated in the
City this month.
KEY TO THE CODE
While comply or explain might
not be as catchy as Brown Sugar or
Satisfaction, these three words are
the principle on which the
Corporate Governance Code which
was first issued in 1992 and turned
20 years old this month operates.
They have had a significant impact
on the way in which UK listed com-
panies have functioned during their
lifetime.
The Code the result of pioneer-
ing work by a committee chaired by
Sir Adrian Cadbury in 1992 came
about as a response to the major cor-
porate scandals of Polly Peck and the
Bank of Credit and Commerce
International, along with the Robert
Maxwell fraud case.
ESSENTIAL RECOMMENDATIONS
The final report, which covered
financial, auditing and corporate
governance matters, made three key
recommendations: that the role of
the chief executive and chairman of
companies should be separated; that
boards should have at least three
non-executive directors, two of
whom should have no financial or
personal ties to executives; and final-
ly that each board should have an
audit committee composed of non-
executive directors.
While the recommendations were
initially controversial, the principles
were appended to the Stock
Exchanges listing rules in 1994. It
was stipulated that companies need
not comply with the principles, but
had to explain to the stock market
why not if they did not.
Two decades on, the Association of
Chartered Certified Accountants
(ACCA) views the voluntary code as,
by and large, a success.
IMPROVEMENTS IN THE BOARDROOM
But there is scope for progress. One
of the key areas of development is on
the issue of diversity on company
boards. ACCA supports greater diver-
sity in the composition of company
boards, not exclusively in terms of
gender but also in terms of back-
ground and experience.
On the issue of gender, the proof
may be in the pudding. There is now
a considerable body of evidence to
Being good helps business prosper
suggest that the presence of women
on company boards actively pro-
motes the cause of good governance
and sound management. There is
also evidence to suggest that compa-
nies with a high number of women
on their boards benefitted from
enhanced business performance.
Indeed, a major report by Lord Davies
for the UK Government referenced
research that indicated high stock
market growth in companies where
there was a preponderance of female
executives.
Companies should also seek to pur-
sue diversity in the boardroom
because it discourages groupthink,
whereby the decision-making process
is led by a desire for agreement
rather than the pursuit of alterna-
tives. For this reason, diversity has
the potential to create more produc-
tive boards. ACCA is not a supporter
of boardroom quotas, although we
do appreciate that they may be the
only route to desirable change if
some companies fail to achieve
greater levels of diversity of their own
accord.
TRANSPARENCY MATTERS
And while comply or explain
known as if not, why not by
Australian regulators has improved
transparency, investors are still call-
ing for more information. Their need
for more integrated information cre-
ates its own challenges for business.
Clearly, while the Corporate
Governance Code is established in
the UK, there are different approach-
es elsewhere and there is a need for
an improvement in standards in
some markets. Indeed there may
even be a case for a minimum global
standard on corporate governance to
reinforce comparability and market
confidence.
ONE SIZE DOESNT FIT ALL
We firmly agree with the Cadbury
Committees 1992 statement that
there cannot have one solution to fit
all companies.
For example, there should be differ-
entiation between large financial
institutions and other listed compa-
nies. There is a need for specific legis-
lation for large institutions due to
the potential risk they pose to other
businesses and to society. On the
other hand, some companies are so
diverse that it would be difficult to
find rules that would apply to all.
There also needs to be a recognition
of the value that strong corporate
governance can bring in other sec-
tors, such as the public sector. But
while much effort has been focussed
on action by business, there are two
sides to corporate governance.
INVESTOR CONTRIBUTION
It is equally important that investors
take an active role in making gover-
nance work in practice.
We relished the development of the
Shareholder Code in 2010, which
encourages institutional sharehold-
ers to appreciate their responsibili-
ties to their own stakeholders. To do
this, shareholders were encouraged
to monitor risky corporate behaviour,
disclose how they vote and press for
management or strategic change,
and think seriously about using the
voting muscle that they have to influ-
ence investee companies. There is
still too little direct involvement by
shareholders and it shouldnt be
left to fund managers to hold busi-
nesses to account over governance.
THE NEED FOR COOPERATION
But the key to any code is to ensure
that it does not become a box-ticking
charter. Organisations cannot be sat-
isfied simply by issuing carefully
crafted, self-congratulatory spin on
how they meet all criteria, but must
instil real change and activity within
the company. Organisations should
be compelled to improve perform-
ance, rather than complying with
codes.
While compliance with Cadbury
does not give immunity from prob-
lems, there is evidence to show that
being good is good for business.
The challenge now is to ensure the
shareholders follow their own code
and spend an more than one hour
each year holding management to
account.
Sue Almond is technical director at the
Association of Chartered Certified
Accountants (ACCA).
ACCA
COMMENT
SUE ALMOND
The Stones are not the only ones celebrating an anniversary this year
How the Corporate
Governance Code had
some positive results
Companies should
be driven by a desire to
improve performance
rather than box-ticking
cityam.com
WEDNESDAY 21 NOVEMBER 2012
BY FRANK DALLERES
Mario can be as super as Messi
and Ronaldo, declares Mancini
WEST Ham face competition from
mega-rich Paris Saint Germain if
they revive their efforts to lure
former England captain David
Beckham to Upton Park in January.
Hammers chairmen David
Sullivan and David Gold are long-
standing admirers of the evergreen
East End-born midfielder, who is
quitting Los Angeles Galaxy next
month. But Qatar-backed PSG have
expressed interest in making
another offer to the 37-year-old,
who almost joined them last winter.
Clubs in Australia notably
Melbourne Heart as well as Russia,
Brazil and China are also ready to
offer Beckham huge deals to join
their developing leagues.
Sullivan said in 2010: Id love
David Beckham. He has massive cult
status in east London and has a
house near our training ground.
Hes from Chingford, which is our
heartland. We are the club of east
London and Essex.
First-team football, something
West Ham could offer, is high on
Beckhams list of priorities as he
weighs up a host of offers.
BY FRANK DALLERES
Hammers bid for Beckham may
be dashed by Paris megabucks
QPR could be forced to hurry a deci-
sion on the future of under-fire man-
ager Mark Hughes after it emerged
Ukraine want to hire the man tipped
to replace him at Loftus Road, Harry
Redknapp.
Hughes remains in charge despite
crisis talks with chief executive
Philip Beard on Monday, 48 hours
after their season lurched to a new
low with defeat to fellow strugglers
Southampton.
The Welshman is on thin ice, how-
ever, with the west London club yet
to achieve a single win from their 12
Premier League games this term and
anchored to the bottom of the table.
Former Tottenham boss
Redknapp, who has been out of work
since his acrimonious departure
from White Hart Lane in June, is the
clear bookmakers favourite to
replace Hughes, should he be sacked.
But QPR chiefs may need to act
quickly if they want Redknapp, after
the Ukrainian Football Federation
(FFU) revealed him to be their sur-
Clock ticking on
QPR as Ukraine
eye Redknapp
prise choice to take charge of the
national team.
He has lots of experience, coach-
ing talent and knows how to moti-
vate, said the FFUs Mikhail
Fomenko. In whatever team he led
Redknapp very quickly improved the
quality of the play and achieved sig-
nificant progress. Today he is an
expert in the game and one of the
best English coaches.
Redknapps representatives con-
firmed last night that FFU officials
had made contact over the vacancy,
after former Chelsea striker Andriy
Shevchenko rejected the chance to
succeed Oleg Blokhin.
Former West Ham and Portsmouth
manager Redknapp was linked with
the Blackburn job earlier this season
but rejected their advances. He is
thought keen to work in commuting
distance from his Hampshire home.
Beard yesterday dismissed
Mondays summit with Hughes as
no different to usual, but chairman
Tony Fernandes is believed to still be
mulling whether to remove the ex-
Manchester City boss this week.
BY FRANK DALLERES
Haskell and Morgan set for England recalls
ENGLAND head coach Stuart
Lancaster will make at least four
changes to the starting line-up for
the Test against South Africa at
Twickenham on Saturday.
Winger Charlie Sharples, flanker
Tom Johnson and No8 Thomas
Waldrom have all been axed from
the 23-man squad as England look
to respond to their frustrating 20-14
loss to Australia last weekend.
Loosehead prop Joe Marler misses
out with a knee ligament injury,
with Alex Corbisiero expected to
return in his place.
Back-row forwards Ben Morgan
and James Haskell have both been
included in the squad for the first
time this autumn, replacing Johnson
and Waldrom.
Sharples has been supplanted by
London Irish centre Jonathan Joseph,
who has shaken off an ankle injury
to return to the squad.
Lancaster will confirm his starting
line-up tomorrow and will be hoping
they can improve Englands recent
record against South Africa.
They have not won against the
Springboks since 2006, losing 22-17
and 36-27 in South Africa during the
summer before regrouping to draw
14-14 in June.
Fly-half Owen Farrell, meanwhile,
believes his rivalry with Toby Flood
for the No 10 jersey can benefit the
side. Farrell has made an impressive
start to his international career,
debuting against Scotland in
February, and scoring 83 points in 10
Tests. However the 21-year-old has
been overlooked for the last four
Tests, filling different roles off the
bench, with Leicesters Flood getting
the nod at fly-half.
It is a competitive environment,
with lots of good players pushing to
be involved. What we have, though,
is a group of players who are putting
the team first rather than any
individual goals. Everyone
encourages each other, said Farrell.
I think there is a healthy
competition between Toby and
myself. We are constantly talking on
how to break teams down and how
to better the team. He is a world-class
player and it is great to be able to
learn off him. We push each other.
Despite losing to Australia on
Saturday, Farrell insists the squad
should remain upbeat.
There were lots of positives to
come out of the Australia game, but
we know that there is stuff we need
to work on too, he added.
We know it will be a massively
physical game against South Africa
and that is what our focus is now on.
We had those three games against
them in the summer and I felt we
got better as the series went on. It is
just those fine margins when two
good teams go head to head.
BY ALEX SHARP
ENGLAND and Liverpool rising star
Raheem Sterling, 17, has been
questioned by police over an alleged
assault of a 27-year-old woman.
The winger was quizzed earlier
this month under caution after
attending a police station by
appointment but was not arrested.
Merseyside police said the
investigation was ongoing.
Former QPR product Sterling
became the fifth youngest player to
represent England when he made
his debut last week in Sweden.
Cops quiz Reds
starlet Sterling
BY FRANK DALLERES
Redknapp has been approached by the Ukrainian Football Federation
Andy Lloyd on cricket: Page 33