Wednesday

18 May 2016

BUSINESS, POLITICS & CULTURE www.bloombergbriefs.com

TALKING POINTS

Khan Backs Garden Bridge: London Mayor Sadiq Khan said he would back the proposed Garden Bridge across the Thames if plans were amended to meet his requirements. He said the project could rival New York's High Line, a public park built on a disused railway line.

Sun Headline Was 'Misleading': The Sun newspaper broke press standards with a front-page headline reading “Queen backs Brexit” after Buckingham Palace filed a complaint saying it was inaccurate, a watchdog group ruled. The Independent Press Standards Organisation ruled that the headline was “significantly misleading” and breached an accuracy clause in the group’s Editors’ Code of Practice.

Sotheby’s Sets Jewellery Record:Sotheby’s beat its own world record for a jewellery sale, amassing $175 million at an evening auction of precious stones in Geneva where a pink diamond was sold for $32 million.The Unique Pink, a 15.38-carat pear-shaped diamond, was estimated to be worth as much as $38 million.

Android Pay Rolls Out: Alphabet Inc.'s contactless mobile payment system Android Pay went live in the U.K. today, making the nation the first outside of the U.S. to support the service. Shoppers will be able to pay with their Android-powered smartphones anywhere that accepts contactless payments, including on London’s transit network of buses, taxis and underground trains. Visa and MasterCard accounts are eligible to be added to compatible Android phones.

Alibaba Said to Discuss FIFA Chinese e-commerce Sponsorship:

giant Alibaba Group Holding Ltd. is discussing becoming a top sponsor of FIFA, according to people familiar with the matter, a partnership that would strengthen the ties between China’s power brokers and global soccer’s top executives.

EU 'Remain' Has Widest Poll Lead in 3 MonthsBY ALEX MORALES

A U.K. opinion poll showed the biggest lead in three months for remaining in the European Union in next month’s referendum. The pound rose.

The Ipsos Mori telephone survey for London’s Evening Standard newspaper showed 55 percent of respondents saying they’ll opt to stay in the 28-nation bloc in the 23 June referendum, up from 49 percent last month. Support for a so-called Brexit fell to 37 percent from 39 percent, with 8 percent undecided. The 18 percentage-point lead is the biggest since mid-February and it was the second poll in as many days to show a double-digit lead for “Remain.”

The poll will provide a boost to Cameron, whose Conservative Party is split down the middle on the issue. While the premier and Chancellor of the Exchequer George Osborne are campaigning for a “Remain” vote, Justice Secretary Michael Gove and former London Mayor Boris Johnson want to quit. Today’s poll showed that the largest shift in voting intentions was among Conservative supporters, according to the pollster.

“Remain has been boosted by a Conservative swing, but they are also more likely to change their mind, so in this volatile election, with voters divided over the short and long-term impacts of their decision, nothing can be taken for granted,” Ipsos Mori Head of Political Research Gideon Skinner said in an e-mailed statement.

The pound jumped to a new two-week high against the euro and reversed its drop against the dollar after the poll was published.

Ipsos Mori surveyed 1,002 adults by phone between 14 and 16 May. It didn’t give a margin for error.

An ORB poll for the Telegraph yesterday showed remain leading on 55 percent support, compared with 40 percent for a leave vote.

Ex-Barclays Trader Says Sushi Offer Wasn’t a Libor BribeBY JEREMY HODGES

A former Barclays Plc trader on trial for rigging Libor said it was made clear to him that he’d have to help manipulate the benchmark as soon as he joined the bank’s swaps desk.

Stylianos Contogoulas told a London jury that his boss, Fred Gourtay, took him to meet the money markets desk and that he was introduced to Libor setter, Peter Johnson.

"The gist of it was that" Contogoulas "would be asked to pass on requests to PJ on occasion," he said as he gave evidence for the first time. His subsequent offers of coffee and sushi to Johnson and underling Jonathan Mathew were just “to show his appreciation” to the team rather than a “bribe.”

Prosecutors say that Contogoulas, 44, and four of his colleagues conspired to rig the London interbank offered rate, a benchmark tied to trillions of dollars in securities and loans. Contogoulas, Mathew, 35, Jay Merchant, 45, Alex Pabon, 37, and Ryan Reich, 34, all deny conspiracy to defraud charges dating from 1 June 2005 to 31 Aug. 2007.

Contogoulas said Gourtay, who is named as a co-conspirator on the indictment, did nothing to suggest that what he was doing was suspicious or secret. Johnson pleaded guilty to manipulating the benchmark rate in October 2014. Gourtay isn’t on trial and hasn’t been charged.

POLITICS

Source: Chris Ratcliffe/Bloomberg

Prime Minister David Cameron was likely pleased to see the poll results.

18 May 2016 Bloomberg Brief London 2

POLITICS

 

AROUND WESTMINSTER

Billionaire Green Faces BHS Grilling: Philip Green will be questioned by U.K. politicians on 15 June as part of an inquiry into the collapse of BHS Ltd., the retail chain he used to own. Green will appear before a joint hearing in London of two parliamentary committees that are looking into the sale of BHS by Green’s Arcadia Group Plc to Retail Acquisitions Ltd. for £1 and his part in allowing the retailer’s pension deficit to swell.  

AROUND EUROPE

The EU Dodges Clash With Spain: European Commission sidestepped a political conflict with Spain, postponing a decision on sanctions for budget violations until after the country’s general election. The commission has been vacillating for weeks over the situation in Spain with its own economists recommending punitive measures and today said it would re-evaluate the budgets of Spain and Portugal in “early

— just after the Spanish vote on 26 July” June. The commission gave both nations an extra year to bring their deficits below EU thresholds.

AROUND THE WORLD

China’s top official for Hong Kong denounced calls for the city’s independence, urging the former British colony to instead seize the opportunity for greater integration with the mainland. Zhang Dejiang — the Communist Party’s No. 3 official and the highest-ranking state leader to visit Hong Kong in four years -- made his remarks today at a banquet attended by top city government officials and business leaders. The speech offered a blunt assessment of recent efforts by some pro-democracy advocates who call themselves "localists" for greater autonomy, even independence, from the mainland.

Cameron Papers Over Tory Splits With Legislative PlanBY ROBERT HUTTON AND ALEX MORALES

With his Conservative Party split over the U.K.’s membership of the European Union, and ministers insulting each other over the airwaves, Prime Minister David Cameron published a legislative program designed to upset no one.

A year after he won a surprise election majority, at a point in the political cycle when he would usually be expected to announce controversial measures that would need time to push through, the prime minister focused today on expanding broadband access, regulating civilian drones and prison reform. An education bill has been watered down after protests from teachers and Tory members of Parliament.

The pageantry of the Queen’s Speech, which saw Elizabeth II arrive at Parliament in a horse-drawn carriage to read out words written for her by Cameron, marked a brief truce in the increasingly hostile battle between senior Conservatives over a so-called Brexit. Cameron, who supports staying in the EU, is opposed on the issue by more than 100 lawmakers in his own party. One of them, former Work and Pensions Secretary Iain Duncan Smith, accused him of diluting his program in an effort to avoid confrontation.

“Many Conservatives have become increasingly concerned that in the government’s helter-skelter pursuit of the referendum, they have been jettisoning or watering down key elements of their legislative program,” Duncan Smith said in an e-mailed statement. “Whether it is the Trade Union Bill or the BBC Charter proposals, it seems nothing must stand in the way of winning the referendum.”

Day-to-day government has been hampered by the Brexit divisions, with a decision on where to expand airport capacity around London and plans to sell the remaining state holding in Lloyds Banking Group Plc among measures put off until after the vote on 23 June.

Under measures announced by the queen, prison governors will be given “unprecedented freedom,” enabling them to make better educational provisions for prisoners and reduce reoffending.

“My government will legislate to reform prisons and courts to give individuals a second chance,” the monarch said. “Old and inefficient prisons will be closed and new institutions built where prisoners can be put more effectively to work.”

Ministers will also introduce a Counter-Extremism Bill to help prevent radicalisation and tackle all forms of extremism. Abroad, the government will continue to work toward resolution of the conflict in Ukraine and play a “leading role” in the battle against Islamic State terrorists, while pushing for a “lasting peace” in Syria, according to the speech.

Other measures include:

A Criminal Finances Bill to tackle corruption, money-laundering and tax evasion.

A Digital Economy Bill to give every household the right to have access to high-speed broadband connection, of at least 10 megabits per second.

A Modern Transport Bill to promote construction of the country’s first spaceport, spur investment in drones and driverless cars and protect customers who buy vacations online.

Legislation to introduce a tax on sugary soft drinks in an effort to combat childhood obesity.

An Infrastructure Bill designed to deliver on a government pledge to build 1 million new homes.

A bill to make overseas visitors pay for treatment in the state-run National Health Service they may currently receive at public expense.

Proposals for a British Bill of Rights.

BUSINESS

Source: Graham Barclay/Bloomberg News

18 May 2016 Bloomberg Brief London 3

BUSINESSAROUND THE CITY

Jobs Market Cooling: The U.K. jobs market showed signs of cooling in the first quarter. The number of people in work rose by 44,000, less than a quarter of the gain seen at the end of 2015, the Office for National Statistics in London said today. Unemployment fell 2,000, leaving the jobless rate at a decade-low 5.1 percent, as forecast by economists. The employment rate edged up to 74.2 percent.  

SABMiller Full-Year Profit Falls: SABMiller Plc, the brewer that’s due to be bought by Anheuser-Busch InBev NV later this year, reported a decline in full-year profit as it was saddled with charges related to some African operations and costs associated with the takeover. Adjusted pretax profit fell 16 percent to $4.1 billion in the year through March, the London-based maker of Castle lager said today in a statement. Earnings were hurt by a $572 million charge as the brewer scaled back operations in Angola and war-torn South Sudan, as well as $160 million in costs associated with the AB InBev deal.

MARKETS

Barclays Said to Plan Further Sale of Africa Unit SharesBY RENEE BONORCHIS, AMBEREEN CHOUDHURY AND DINESH NAIR    

Barclays Plc plans to continue selling further stakes in its South African business on the market after cutting its holding to about 50 percent, three people with knowledge of the matter said.

The British bank is leaning towards conducting more sales to money managers - fast, controlled offerings with little-to-no marketing - after the May 5 transaction drew demand exceeding what was was on sale, the people said, asking not to be identified as the plans are private. Selling to a single buyer may face significant regulatory hurdles, the people said.

Dubai-based Abraaj Group is leading a group of investors that plan to bid for a stake of as much as 35 percent in Barclays Africa Group Ltd., people familiar with the matter said earlier this month. That came after ex-Barclays Chief Executive Officer Bob Diamond confirmed months of speculation in April when he said he and investors including U.S. private equity giant Carlyle Group LPare working together on a potential bid.

The bank is open to selling a significant minority stake, according to one of the people.“As a regulator, we won’t be comfortable with a private-equity play for any of the

banks,” Deputy Reserve Bank Governor Kuben Naidoo said earlier this month. The central bank would “look quite negatively” on a buyout because these typically involve leverage and exit strategies, and banks need long-term commitments from shareholders with deep pockets, he said.

Barclays in London and Barclays Africa in Johannesburg declined to comment.

Burberry Cuts Outlook Again, Pressure Mounts on CEOBY ANDREW ROBERTS    

Burberry Group Plc unveiled a multi-year turnaround plan based on a narrower product range, its biggest cost purge in years and a sharper focus on bags and online sales, after lowering profit expectations for the second time in a month.

Earnings for the year ending in March are likely to be near the bottom of the range of analysts’ predictions, London-based Burberry said today, only a month after giving a similar warning. Analysts reduced profit estimates by almost 10 percent and the shares fell as much as 4.4 percent to a four-month low.

The muted outlook increases pressure on Chief Executive Officer Christopher Bailey amid concern over whether he can lead the company effectively while doubling up as chief creative officer. The CEO, who faces a struggle to boost sales due to an over-reliance on an ailing Hong Kong market, said he plans “significant changes” to save 100 million pounds ($144 million) a year and will reduce the product range by as much as a fifth.

“Creating new demand has to be at the core of Burberry’s future strategy,” Paul Thomas, an analyst at consultant Retail Remedy, said by e-mail. He called on the company to appoint “a commercially experienced heavyweight” to work alongside Bailey, joining a growing roster of analysts who think the CEO needs help.

The shares were down 2 percent at 1,120 pence at 9:33 a.m. in London, extending their decline this year to 6.3 percent.

 

OUT OF OFFICE BY MARK GILBERT

Source: Chris Ratcliffe/Bloomberg

Christopher Bailey

18 May 2016 Bloomberg Brief London 4

OUT OF OFFICE BY MARK GILBERT

Barclays Libor Woes Started When It Broke Ranks: Bloomberg ViewFive former Barclays traders are on

trial in London, accused of rigging money-market rates. A lawyer used a story I wrote nine years ago when the credit crisis was erupting as a stick to beat up bank executives called as witnesses in the case, who deny they were aware of any problems with the interest rates the bank was submitting. With hindsight, I'm increasingly convinced that the scandal came to light because Barclays, unlike its peers, tried to do the right thing by reporting that borrowing costs were surging as financial markets fractured.

The events in the money markets eight years ago prompted wide-ranging changes to how benchmarks are set in many financial markets, with investigations following into how commodity prices and currency values are set. And the authorities are still pursuing legal action over the manipulation of market prices that distorted $350 trillion of securities.

In 2007, I was spending a lot of time watching Libor. Banks were later accused of rigging those rates and paid about $9 billion in fines. More than 20 individual traders in the U.S. and the U.K. have been charged, though only the former Citigroup trader Tom Hayes has been convicted (he is appealing the verdict). But back then I was interested in what the rates were saying about market stress for individual firms. So after new rates published by the British Bankers Association on the last day of August highlighted a jump in borrowing costs for Barclays, I wrote:

"Barclays Plc, the U.K.'s third-biggest bank, told the BBA that borrowing pounds for three months would cost it 6.8 percent -- more than any other bank on the panel, and a full 11 basis points above the official Aug. 31 fix. Three-month euros would cost Barclays 4.76 percent, also more than any other contributing bank. Three-month dollars, meantime, would

cost 5.75 percent which — yes, you've guessed it — was also the highest rate among the 16 institutions canvassed. So what the hell is happening at Barclays and its Barclays Capital securities unit that is prompting its peers to charge it premium interest rates in the money market?"

I'd given the press officers at Barclays the opportunity to comment on the Friday, which they declined. The story ran first thing on Monday. Not long after breakfast, I found myself on the phone with a Barclays executive. Speaking off the record, the executive told me I'd gotten

Not long after breakfast, I found

myself on the phone with a Barclays

executive.  

the wrong end of the stick entirely. It wasn't that Barclays was paying more for money; his bank, he told me, had decided to address what was really happening in Libor. Its rates looked higher than anyone else's because everyone else was still pretending it was business as usual in the funding world, submitting normal borrowing rates as if money was still freely available. The banks weren't ready to admit that the money market had dried up. Barclays, he insisted, was trying to be the good guy and end the charade.

My instinct was to dismiss his pleadings as self-serving, but I offered to write a second story examining his claim -- on the condition that Barclays went on the record. He declined to do that, which

seemed to confirm my skepticism.Today, I suspect the Barclays

executive was telling the truth. Everyone else was trying to conceal just how fractured the markets were becoming. Money wasn't available; so instead of using transactions (actual or potential), the banks were using guesswork — and no-one wanted the stigma of a high borrowing cost, even if the truth was that money was clearly becoming more expensive every day.

Prosecutors for the Serious Fraud Office disclosed last week that Peter Johnson, the former Barclays trader who was responsible for the bank's Libor submissions, pleaded guilty in October 2014 to conspiracy to manipulate the rates. Five of his former colleagues, currently on trial, all deny the charges.

I feel a tinge of compassion for Barclays; in the fetid environment of the credit crunch, I can believe that Barclays and its management may have believed they were being leaned on by the central bank to keep Libor lower. So when the August attempt to submit a higher rate that better reflected true market conditions backfired and Barclays found itself suspected of struggling to borrow, I can see why it might abandon that initiative.

Trying to paper over the cracks in the money markets by lowballing Libor submissions, if that is indeed what was happening, would have been wrong and bound to backfire. But given that Libor rates at the time were clearly a matter of guesswork rather than calculation, it's possible to see how an entire industry could convince itself that being economical with the truth about borrowing costs was serving some public good in maintaining confidence in the financial system.

This column does not necessarily reflect the

opinion of the editorial board or Bloomberg LP

and its owners. The article has been edited and

condensed. Read the full version .here

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