PRESS DIGEST – Financial Times – June 11

Financial Times

INTERBANK RATES DIVERGE IN SIGN OF EUROPE BANK STRESS

Stresses in the euro zone banking system have led to
European interbank lending rates diverging to the widest levels
recorded. Until last summer, Euribor money market rates, which
come from across euro zone financial centres and euro Libor
Rates, which measure conditions in the London market, were
almost identical. Since then they have diverged steadily and
Euribor rates have risen above Libor. The two now trade seven
basis points apart. Icap economist Don Smith notes that this is
in part due to “heightened concerns about the greater exposure
European banks have to the peripheral euro zone”.

S&P WARNS ON EUROPE’S MORTGAGE MARKET

Ratings agency Standard and Poor’s has said mortgages in
some European countries could become scarcer and more expensive
when governments eventually remove crisis related backing for
the securitisations that support home loans. The amount
outstanding in residential mortgage backed securities has almost
doubled since 2007 with most of the increase either being placed
with central banks as collateral for cash loans or being held on
banks’ books ready to be used this way. As part of its special
liquidity scheme, due to close in three years, the Bank of
England has advanced 185 billion pounds against securitisations.

BIGGER BUILDERS SURVIVING BETTER

The current economic downturn is impacting smaller
construction firms more than their larger rivals. A Financial
Times analysis of the UK’s top 50 construction firms showed the
top ten percent of firms saw their average contract size rise to
13.5 million pounds during the year to May, 20 percent up on the
same period in 2008. Contrastingly the five smallest builders
saw the average size of their contracts almost halve to 670,000
pounds. Spending in the private sector, to which smaller
builders are geared, fell 19.4 percent in 2009, while larger
groups benefited from a 3.8 percent increase in government
spending.

O2 AXES ALL-YOU-CAN-EAT DATA PLAN

Mobile operator O2 is moving to axe “all-you-can-eat” data
plans, which enable smartphone customers unlimited Web browsing
for a fixed-fee, prompted by network overloads associated with
the bandwidth-hungry phones. The Telefonica-owned (TEF.MC: )
operator said it expects only three percent of its 21.4 million
customers to have to pay for breaching data usage caps, most of
whom are expected to be iPhone users. In a similar move,
Vodafone (VOD.L: ) has also cancelled unlimited data plans but
analysts say its arrangements were not as severe as O2’s. Ronan
Dunne, head of O2, said data caps would enable the firm to
increase investments in faster networks and denied there could
be a backlash, saying investment in infrastructure “has to be a
great thing for customers”.

L&G TO START KEY CITY DEVELOPMENT AS DEMAND FOR NEW OFFICES.

Financial services firm Legal & General (LGEN.L: ) will unveil
demolition plans as part of the development of one of the City
of London’s biggest commercial schemes, seeking to gain from the
upturn in tenant demand for new offices in the Square Mile. L&G
will announce on Friday that it will be demolishing Bucklersbury
House in the first phase of construction of its 900,000 sq ft
Walbrook Square office scheme and build a new station entrance
and ticket hall for London Underground at Bank Station. The firm
has negotiated a package with the City of London and the GLA to
accelerate the pace of work and meet the new wave of office
demand, which has also encouraged developer Land Securities
(LAND.L: ) to prepare sites for new projects.

ROSE REFLECTS ON A 47 PERCENT RISE AT M&S

Marks and Spencer (MKS.L: ) executive chairman Sir Stuart
Rose, who gave 12 months notice in March of his departure from
the retailer, is ending his last full year with a 47 percent
rise in pay and cash bonuses. Rose, who last year turned down
one million pounds worth of shares in the retailer to placate
disgruntled investors, is expected to receive cash bonuses
between 1.76 to 2.6 million pounds. On boardroom pay, investors
have also expressed unease at a “golden hello” worth up to 15
million pounds for incoming chief executive Marc Bolland, as
partial compensation for the cash and shares he would have
received at WM Morrison (MRW.L: ). In anticipation of Rose’s
imminent departure from the company and in keeping with the
“policy for ‘good leavers'”, M&S said: “Any bonus earned by Sir
Stuart Rose for 2010/11 would be paid wholly in cash in July
2011.”

BETTER CAPITAL TO RAISE 65.8 MILLION POUNDS

Jon Moulton, founder of turnaround private equity group
Better Capital (BCAP.L: ), has announced plans to move its public
listing from Aim to the London Stock Exchange to raise 65.8
million pounds from an open offer of new shares. The decision by
Moulton has been prompted by the growing number of distressed
assets emerging due to the economic downturn and follows a 142.4
million pound fund-raising from the firm’s flotation. Moulton,
who had hoped to raise 200 million pounds from 2009’s flotation,
said several turnaround investments had surfaced “in the
construction-related sectors, like building materials and plant
hire” with a few “high-end retailers” also being of interest to
the firm.

BRIT INSURANCE REJECTS APPROACH FROM PRIVATE EQUITY FIRM

Brit Insurance (BRE.L: ) said on Thursday it had rejected an
approach from an undisclosed private equity group. The Lloyds of
London insurer, which currently trades at more than a 30 percent
discount to asset value, described the approach as
“significantly” undervaluing the group’s value and said there
was no basis for further discussion. A banker familiar with the
group said that any realistic offer would have to be at a
premium to book value and would likely be in the region of one
billion pounds, putting it out of the reach of most private
equity firms.

NEW HEALTH STUDY DEALS FURTHER BLOW TO GSK’S AVANDIA

A study prepared by Food & Drug Administration researcher
David Graham suggests that GlaxoSmithKline’s (GSK.L: ) blockbuster
diabetes treatment Avandia poses an increased risk of strokes,
heart failure and death. The U.S. regulatory agency’s findings
follow a 2007 report by cardiologist Steven Nissen highlighting
the risk of cardiac problems and may strengthen the case of
thousands of litigants claiming compensation for alleged side
effects. An FDA committee, scheduled to start on July 13, could
result in tougher safety warnings or the withdrawal of the drug.

Investing

Prepared for Reuters by Durrants

PRESS DIGEST – Financial Times – June 11