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Sunday newspaper round-up: Tesco, Royal Dutch, Boeing

Date: Sunday 29 Jan 2012

Sunday newspaper round-up: Tesco, Royal Dutch, Boeing

The richest college at the University of Cambridge, Trinity, has invested in the UK's largest retailer by acquiring a 50% stake in a portfolio of Tesco stores worth £440m. It is understood to be the first time the college has invested in supermarkets, although it has a property portfolio worth more than £800m. Trinity uses endowment funds to invest in property and provide extra income for education and research. Its portfolio includes the freehold to land surrounding The O2 arena in London. The college has acquired the 11 stores alongside a Tesco subsidiary in a deal financed through the issuing of a £450m commercial mortgage backed security (CMBS) on Wednesday. The Tesco portfolio includes stores in London, Bradford and Doncaster, as well as a development site in Woolwich, south-east London, The Telegraph reports.

Investors have returned to US junk bonds in numbers after last year´s rally halted as Europe´s debt problems drove them to havens. Cash has poured into the market so far in 2012, with US mutual and exchange traded funds that buy low rated corporate debt taking in more than $5bn during the past three weeks, according to data from Lipper, the fund tracker. (…) But some strategists warn that the market looks vulnerable. “There has been some relief that short-term pressures in Europe have eased and that touched off a rally,” said Mike Kessler, a credit strategist at Barclays Capital. “We are cautious because we don´t really see that the fundamental underlying issues in Europe have been resolved,” he added, The Financial Times reports in its Weekend Edition.

If this year’s World Economic Forum has made one thing clear, it is that Greece is now the world’s Achilles heel, not just Europe’s. As Greek leaders remained locked in writedown negotiations with private creditors over its huge debt, which have dragged into the weekend, George Osborne admitted that Europe’s attempts to solve the Greek sovereign debt problem had failed. “The fact that we’re still, at the start of 2012, talking about Greece again is a sign that this problem has not been dealt with,” the Chancellor told a panel at Davos on Saturday. “The danger here is that the tail wags the dog throughout this crisis, in other words the inability to deal with the specific problems in the periphery causes shockwaves across the whole European economy, and the world economy,” The Sunday Times says.

Higher annual and quarterly profits from oil heavyweight Royal Dutch Shell are this week expected to ignite the fury of hard-pressed drivers who continue to face near record prices at the petrol pump. But the figures are likely to spell good news for investors as analysts raise the prospect that Shell, which boasts one of the largest dividends on the FTSE, may recommend an increase in the pay-out. Although both full-year and quarterly numbers will be released, the City will focus on profits for the last three months of 2011, which are expected to be about 20% higher compared to the same period in 2010. However, analysts forecast they will be roughly 27% below the third quarter as oil prices remained relatively flat over the final three months of 2011. That followed steep price gains earlier in the year driven by the political turmoil in the Middle East and North Africa. The City spotlight on Thursday will also be on whether Shell confirms progress in getting American regulatory permits to explore an eventual potential oil bonanza off the Alaskan coast, Scotland on Sunday reports.

There are not many businesses in which the next six years’ worth of customers form an orderly queue, putting down fat deposits and topping them up with further installments as they wait in line. But that is Boeing’s fortunate position. (…) Still, with the world economy looking wobbly and the euro area crisis far from over, might suppliers not have good reason to fear that the recent surge in aircraft orders could go into reverse thrust? Myles Walton, an aerospace analyst at Deutsche Bank, believes that both Boeing and Airbus have quietly begun double-booking some of their delivery slots, in case a customer collapses. He reckons they have done enough of this to cope with the worst imaginable recession in Europe. Perhaps the biggest risk on the horizon would be a sustained surge in the price of oil, which could send airlines into a tailspin of losses and bankruptcy. So far, though, the chief worry for Boeing and its main rival is how to get their products flying out of the door faster, The Economist writes.

For Paul Murphy, at The Financial Times, the recent scandal regarding Sino-Forest, a lumber company listed on the Toronto stock exchange, may hold some lessons for investors in outfits with assets in faraway regions. The firm´s story, with alleged assets in China and Suriname, found surprisingly little traction in London. That was a $5bn company, quoted on a respectable public market for six years, that could not prove its assets actually existed when pressed. If, and when, a Sino-Forest type scandal hits London, it will not matter which particular London market the stock trades on. The damage will be reputational and it will apply across the board.

Britain's biggest banks are poised to report a drop in revenues and underlying profits, fuelling public and political fury over massive bonus payouts. The decline in profitability comes as Royal Bank of Scotland attempts to defuse outrage over chief executive Stephen Hester’s bonus of almost £1million. The overall London bank bonus pool is expected to top £4.2bn. RBS chairman Sir Philip Hampton has given up a shares bonus he was due later this year that would be worth £1.4m at the current price. Banks were hit last year by poor trading at investment banking operations, a squeeze on profits from High Street branches and multi- billion pound payouts for mis-sold payment protection insurance. All of the leading banks – except Standard Chartered, which operates mainly in the Far East – are expected to show a drop in revenues, according to most analysts’ forecasts. The lower income is bound to contribute towards a reduction in underlying profits. Santander UK, the British subsidiary of the Spanish banking giant, will report full-year figures on Tuesday, kicking off the reporting season in London, The Daily Mail reports.

George Osborne told British business to go out and make the case for cutting the 50p tax rate, warning that it was doing long-term damage to the economy. Addressing corporate leaders at the World Economic Forum in Davos, Switzerland, the Chancellor reiterated that the top rate was “temporary”, in words that will revive hopes that the tax band introduced by the previous Labour Government will be reversed. But his comments will also reopen tensions within the coalition as the Liberal Democrats demand urgent help for less-well-off households. Nick Clegg called this week for the rapid introduction of a £10,000 tax threshold, saying that family finances were facing a state of emergency”. Yesterday Mr Osborne said that Britain already had a “pretty competitive tax regime”, pointing out that he was “aggressively” reducing corporation tax. Challenged by an entrepreneur over the 50p band, he said: “The long-term economic damage of this tax is potentially quite considerable, and that’s why it is temporary,” according to The Sunday Times.

Otto Thoresen, head of the Association of British Insurers (ABI), has dashed hopes that institutional investors will police soaring levels of pay among Britain’s biggest companies. He warned that ABI members – who include most of the major institutions – would not get involved with the “micro-management” of individual directors’ remuneration despite expectations among policymakers that investors would play a major role in tackling “fat cat” pay in future. Business secretary Vince Cable last week unveiled a raft of measures to clamp down on executive rewards, including a binding vote for shareholders on companies’ remuneration policies. Currently such votes are only advisory. Thoresen said ABI members would draw a “clear line” and leave boards to decide how much top staff are rewarded. “For shareholders to get in discussions around individuals within firms or individual amounts [of pay], that gets to micro-management,” he said, according to Scotland on Sunday.

Writing about Greece in its latest edition The Economist says that, “(…) most business-people see little merit in devaluation. “The empirical evidence is against it,” says Efthymios Vidalis of SEV, Greece’s main business federation. “Greece had two devaluations after joining the European Union and the benefits were short-lived before inflation eroded them. It didn’t work.” There is another way. When the crisis struck, Apostolos Vakakis, the founder of Jumbo, a Greek retailer, faced a choice: cut costs by 20% or raise productivity by that amount. He chose to improve productivity. In return for a pledge not to cut jobs or wages, Jumbo’s employees agreed to work harder. Each store is now staffed with fewer workers, allowing the firm to open outlets at a faster rate. (…) Public opinion also still favours the euro: more than 70% of Greeks say they want to stay in the single currency. But if Greece is to have the breathing-space it needs to right its economy, it has to convince its rescuers that they are not throwing good money after bad.”

AB

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