This Week In The City... 6th December
In his pre-budget speech, Chancellor of Exchequer Gordon Brown admitted to getting his numbers wrong in the April budget, and have had to downgrade his economy growth forecast from 2%-2.5% to 1.6%. Additionally, the public sector borrowing will also rise to £20bn, £9bn more than Mr Brown had expected. He blamed the shortfall in tax revenues as the main reason, where the ailing financial sector have seen capital gain and income tax shrink to almost half of what it was at its peak. In a futile attempt to cover this blunder, Mr Brown pointed out that U.K is faring better than the likes of Japan and U.S amidst the worst global economic depression since the 70’s.
Abbey National, Britain’s sixth largest bank is to become the first U.K bank for a decade to slash its dividends. After several profit warnings this year, a new management have been installed to restructure Abbey, concentrating on its core businesses of retail banking and mortgage. These restructuring have resulted in a raft of write down and goodwill charges[1], which could see Abbey announce an estimated £1.5bn lost.
Analysts suggest that the bull run[2] in government bonds is set to end soon. The global economic and stock market slump have seen investors shy away to the safe haven of government bonds. This surge in demand has pushed yield[3] to a historic low, but with the recent rally in the UK and US equity market, it is likely that investors would make a turnaround. What this all means is that governments around the world will have to pay a higher interest or yield to borrow, not that you care.
The continuing saga between Vodafone and Vivendi Universal, the French conglomerate is set to end soon with Vivendi expected to take a controlling share in Cegetel. Here’s how the story goes. Cegetel owns 80% of SFR, France’s 3rd largest mobile operator, France is the only major European market Vodafone is yet to penetrate. Vodafone already owns 20% of SFR and 15% of Cegetel, but would require the 28% of Cegetel that BT owns to gain overall control in Cegetel and hence SFR. Vivendi meanwhile, would like to keep the miserable English off their backyard, and they hold a large share in Cegetel and pre-emption right over any bids for BT stakes. This means they can block any move for BT’s Cegetel shares by buying it themselves instead. Vivendi can’t afford this, but might be able to find enough banks to back it. Having just rejected Vodafone’s bid for its own share in Cegetel, Vivendi is expected to go ahead and acquire Cegetel this week. You’re not following this are you?
MyTravel have plunged into the red for the first time in 31 years, which has been brought about by a disastrous trading year and changes to aggressive accounting policies, which have seen extra expenses charged at £70.6m, amounting to a loss of £72.8m. However, having secured an extension to its £250m loan facility from a consortium of banks, new CEO Peter McHugh promises a review of the business in the coming months, which could include disposals of some of its loss making units.
Sir Terence Conran, founder of Habitat and Conran Shop is to launch his first furniture collection since selling Habitat to Ikea in the 70’s. The new range, Content by Conran is to be launched for Christi-Tyler the furniture manufacturer and will bear the Conran name.
Deloitte & Touche will split a £100m windfall amongst its 400 or so partners. This windfall arose from the fact that the partners had accepted share offers as bonus in Liberata, D&T’s former outsourcing arm, which is now being sold to General Atlantic for £100m, which would see £240k down each partner’s pocket.
