LONDON (SHARECAST) - The Government demanded that the new chief executive of the defence division of a merged BAE-EADS aerospace giant should be British “in perpetuity”, in a move that is believed to have increased tensions with Germany. Ian King, the chief executive of BAE Systems, revealed that the agreement was one of the UK’s national security “red lines” on the 28bn pound deal, which collapsed last week. George Osborne, the Chancellor, said Germany “vetoed” the deal over how much influence it would have over the new global business. “It would have been run by a Brit. Forever, a Brit,” Mr King revealed, saying that the post would have been based in the UK, along with the chief financial officer, The Sunday Telegraph reports.
BAE Systems plans to splurge the proceeds of a Saudi arms deal on a share buyback to head off an investor rebellion. Invesco, the City fund manager that holds a 13.4% stake, is pushing directors to return cash after the defence group’s £28bn merger with EADS collapsed last week. The cash dispute, however, predates the EADS talks. Neil Woodford, Invesco’s top fund manager, is understood to have written in blunt terms to Dick Olver, the chairman of BAE, in May last year. The letter, a copy of which has been seen by The Sunday Times, upbraids the company for considering takeovers rather than share buybacks, a common tool for returning money to shareholders. It makes clear Woodford will consider all options, including a push to replace the board. New management could embark on a rapid sell-off to return cash to investors, resulting in a much smaller company.
Standard Life expects to boost its UK business by two million customers over the next three years on the back of regulatory changes coming into force this month. Paul Matthews, chief executive of the firm’s UK and Europe division, said the company has “never been in a better position” due to a £600m investment in its systems to prepare for changes under the Retail Distribution Review (RDR) and pensions auto- enrolment. He said: “We have four million customers today. With what is happening with pension reform and auto-enrolment, I can see us moving to six million in the next two to three years.” Tomorrow, the insurance giant will “go live” with the range of services it has developed ahead of changes to the long-term savings and investment industry being ushered in by the RDR, The Scotsman on Sunday says.
Virgin Money is poised to work on a bid for the 316-branch Royal Bank of Scotland division after the collapse of the deal to sell it to Santander. The Sir Richard Branson-backed bank, which took control of previously nationalised Northern Rock on January 1st, is ready to look at the balance sheet of the unit with a view to beginning formal due diligence once the sales process is restarted. A source close to Virgin Money indicated that it had been “very keen” on the RBS unit when it was first put up for sale in 2010, and would be seriously considering the opportunity to rebid. Buying the division would more than quadruple Virgin’s branch network, and add a small and medium-sized business bank to its offering, The Sunday Telegraph says.
Britain is poised for a dose of good news on Monday when one of the country’s leading forecasters predicts that the economy will bounce back to 0.7% growth, and a housing market recovery will start in the spring. Even so, the Ernst & Young Item report, to be published on Monday, predicts that in the fourth quarter of this year headline growth will slow back to just 0.1%, meaning the economy will shrink by 0.2% for 2012 as a whole. Yet, as the UK sees inflation ebb and lending improve, the momentum seen in the second half of this year will continue, with an annual growth rate of 1.2% in 2013, then 2.4% in 2014. However, Item also believes that the economy’s growth spurt is unlikely to be enough to allow the Chancellor to meet the Office for Budget Responsibility’s forecast of a £95bn deficit for the 2012/13 financial year, as he looks set to overshoot by £8bn. Hence, the fiscal watchdog could suggest that more austerity is necessary after the election if the Chancellor is to meet his targets, according to Item, The Sunday Telegraph writes.
BP could be forced to hold its first extraordinary general meeting in more than a decade to gain approval for selling out of TNK-BP. The British oil major is this week expected to receive an offer from its oligarch partners AAR to buy out its 50% stake in their joint venture. It is also in talks with state-controlled Rosneft over a sale. But the venture is so significant to BP — accounting for 27% of its proven reserves — that any sale could require shareholder approval. Under Financial Services Authority rules, an oil company disposing of an asset that accounts for more than 25% of its proven and probable reserves must obtain shareholder approval before completion. BP declined to say what proportion of proven and probable reserves TNK accounted for, but oil analyst Malcolm Graham-Wood, at VSA Capital, said it was likely to be a similar proportion to the share of its proven reserves, The Sunday Telegraph says.
Prudential looks set to keep its headquarters in London despite previous suggestions that it could move to Asia amid concerns about European capital requirements. The FTSE 100 insurance company is understood to be winding down work related to a domicile change after signals that the European Union’s potentially damaging Solvency II legislation could be delayed until 2016. A board report, conducted by external consultants Deloitte in conjunction with senior Prudential staff, is understood to have hinted that Singapore was the most likely Asian domicile were the board minded to move. However, The Sunday Telegraph understands that the domicile-change project is now all-but over, with one source having indicated that “atmospherically” the issue was virtually “dead in the water”.
Directors at Bumi will this week go to war with Nat Rothschild over a plan to part company with the beleaguered mining group’s Indonesian backers. Board members led by Sir Julian Horn-Smith, the vice-chairman, are expected to appoint Rothschild, the investment bank, to provide an independent assessment but are understood to support some aspects of the proposal. Nat Rothschild, who is sitting on a loss of more than $100m (£62m) on his 12% stake, is vehemently against it. He created Bumi in summer 2011 when he merged a London cash shell with a Bakrie-controlled Indonesian miner. Rothschild is not alone. At least two top 10 investors are likely to vote against the Bakries’ proposal. One said: “They’ve got to be joking. I’m deeply cynical about the timing of their proposal — the investigation is ongoing,” The Sunday Times reports.
Predictions of an energy crisis have been in the air for years. But the term “blackout” is an attention-getter. The warning comes from Ofgem, the industry regulator, which predicts an imminent drop in spare electricity capacity from a margin of 14% at present to just 4% by 2015. Roughly a fifth of Britain’s power stations are due to be retired in the coming decade, mostly because they are old and dirty. Despite years of government incentives, few new ones are being built, The Economist explains.
George Osborne was increasingly isolated over energy policy last night, after the head of the CBI said that too much reliance on gas as a future source of energy would leave consumers and businesses dangerously exposed to further sharp price rises on global markets. After a week in which two of Britain's biggest energy suppliers shocked customers by announcing increases of up to 9% on gas and electricity bills from next month, business leaders are warning that the chancellor's enthusiasm for a "dash for gas" looks like a recipe for economic and environmental disaster, according to The Observer.
International Monetary Fund research suggesting that tax rises and public spending cuts might be so harmful as to be self-defeating has been the talk of annual meetings in Tokyo this week. The work appeared in the IMF’s latest World Economic Outlook. Even though Olivier Blanchard, the fund’s chief economist, was careful not to draw strong policy conclusions from it, others seized on the IMF numbers as proof that deficit reduction efforts by governments were misguided. Paul Krugman, the Nobel Prize-winning economist and writer for The New York Times, wrote that the research “directly contradicts current GOP [US Republican Party] doctrine”. An exercise by the Financial Times to replicate and evaluate the IMF’s work, however, showed that the results suggesting very large multipliers – the relationship between deficit reduction efforts and growth – do not easily stand up to a different choice of countries or time period. Similarly, economists contacted by the FT worried about the robustness of the techniques used. Nevertheless, Jonathan Portes, director of the UK’s National Institute of Economic and Social Research, while worried that cross-country studies with small samples never prove anything, strongly believes multipliers are large.