BAE Systems has agreed to plead guilty to criminal charges and pay fines totalling £288m (US$450m) in the US and UK to end the long-running investigation into alleged bribery and corruption involving arms sales. BAE is to pay a US$400m fine in the US and plead guilty to one charge of conspiracy, with a £30m fine in the UK as well as a guilty plea on minor accounting charges. The settlement will enable the company to continue to compete for US and UK defence contracts, although anti-arms campaigners have criticised the deal as being too lenient. BAE chairman Dick Olver said the company regretted 'its shortcomings' but added that it allowed the company to draw a line under past issues.
Editorial: The FT thinks the revamped BAE board now has the opportunity to show it will not repeat its past mistakes.
[ pp.1, 2, 10 ]Icap CEO Michael Spencer is under pressure for the £45m sale of shares last month ahead of a surprise profit warning which pushed the shares down 19.5% to 294p on Friday. Icap blamed uncertainty over US banking reforms for the slump in the shares, although the Spencer share sale has led to calls by Labour and Liberal Democrats for an investigation because of Spencer's role as Conservative Party Treasurer. Meanwhile, the legal action by Tullett Prebon against former employees allegedly poached by rival BGC has ended, with the verdict due within the next few weeks.
[ pp.1, 13 ]Goldman Sachs CEO Lloyd Blankfein has been given a US$9m bonus in an apparent attempt by the bank's board to reduce public criticism of payouts after a record year. The US$9m was far lower that Blankfein had received before the financial crisis and is in contrast to the US$17m given to JP Morgan Chase CEO Jamie Dimon. Meanwhile, Royal Bank of Scotland is also expected to pay a lower proportion of its revenues to investment bankers than its rivals following talks with UK Financial Investments.
[ pp.1, 17, 5 ]British Airways reported a small operating profit of £25m in the final quarter of 2009 as the benefits of controversial cost-cutting measures began to make an impact. But the airline still suffered a £50m pre-tax loss for the quarter and is expected to make record losses in the full-year, although analysts believe the worst of its financial pressures are now coming to an end.
[ p.12 ]...Andrew Hill thinks that the political flak over Icap CEO Michael Spencer's share sale should die down quickly, although investor concerns over short-term prospects are likely to persist as a result of shifting regulatory boundaries.
...Rio Tinto has made a sensible move to promote Chinese speaker Ian Bauert to the new post of China managing director, although the revival in world demand for iron ore will give Rio a stronger hand when it comes to negotiating with the Chinese than it did at this time last year.
...The settlement of the charges against BAE Systems over alleged bribery and corruption is good news for investors and should enable the company to move on without the mistakes of the past continuing to haunt it.
[ p.15 ]...thinks the British Airways turnaround will remain slow and bumpy until the attitudes of its staff and its putative partners changes to reflect the different world they now operate in.
...Investors in Ukraine believe 'things can only get better', although the risks associated with the country's tangled politics remain.
...Although advertising rates for commercials shown during the Super Bowl on Sunday night have dropped, the appeal of reaching 100m people in a single sitting is hard for advertisers to ignore.
...A radical solution to the growing Greek debt crisis, advocated by Connolly Global Advisers, is for Germany to quit the euro, giving it back its strong Deutschmark and providing the remaining countries with the devalued rump of a euro they need.
[ p.24 ]...John Authers thinks it is possible to read too much into history when trying to predict the future of markets, suggesting that while the risk of another big lurch downwards in stocks and other assets is possible, it is not inevitable.
[ p.24 ]The BAE Systems settlement with the US and UK authorities for alleged corruption over arms sales has left it pleading guilty to minor accounting charges rather admit to the initial claims of bribery, corruption and supplying prostitutes. The decision to plead guilty - along with paying £285m in fines - means BAE can continue to bid for defence contracts, although it would have lost this right had it admitted bribery or been found guilty in the courts.
Comment: Ian King believes the rise in the BAE share price in a falling market highlights the City's relief that the potentially damaging bribery allegations have been resolved.
[ p.3 ]Guy Hands, chairman of Terra Firma Capital Partners, will discover on 18 February whether his legal action against Citigroup over the EMI buy-out will be heard in New York or London. Hands has provided the courts with evidence of his tax-exile to Guernsey over the past year, leaving his wife and children at home in a bid to ensure the UK tax authorities have no jurisdiction over him. But Citigroup maintains the case should be heard in London as that it where the original EMI deal took place.
[ p.55 ]...Patrick Hosking says it is time for a rethink of the rules governing share dealing by directors in their own companies in the wake of Icap CEO Michael Spencer's £45m sale of stock shortly before a profits warning.
...Reports from US investigators suggests that some Wall Street bankers were using inside information on bailouts to trade in bank shares during the financial crisis - yet another story of 'single-minded, shameless self-interest'.
...The direct investment by overseas sovereign investors in Gatwick airport is likely to pay better returns in the long-run than the excessive obsession by UK institutional investors in diversification and liquidity.
...There appears, sadly, little chance of UK regulators taking action against the banks who mislead investors over mega-deals in the same way as New York attorney general Andrew Cuomo is doing against Bank of America for pushing through the Merrill Lynch merger.
[ p.53 ]...Alistair Osborne has no doubt that it was the US Department of Justice which achieved the settlement with BAE Systems on corruption charges, with the Serious Fraud Office bringing up the rear a long way behind.
...Latest results from British Airways show CEO Willie Walsh is on the right track with his cost reduction strategy and the cabin crew and their unions should think hard about trying to reverse this.
...Jeremy Warner wonders if we are poised to enter the third, and potentially fatal, third-leg of the financial crisis with the problems of the so-call 'pigs' countries (Portugal, Ireland, Greece and Spain). But in spite of the political paralysis that appears to have gripped London and Washington, tighter fiscal and monetary conditions are coming whatever they do. But it does not have to be a rout.
[ pp. 35, 25 ]Stock markets continued to fall around the world in the wake of the growing debt crisis at some of the weaker eurozone members, including Greece and Spain.
Comment: Hamish McRae believes the Greek crisis is a test for the eurozone as a whole, with borrowing costs likely to rise in the months ahead if confidence cannot be restored.
[ pp.1, 6, 7 ]...Stephen Foley believes the current strategy by major pharmaceutical groups to cut their own R&D in favour of buying-in new drugs may have unforeseen consequences, especially as it will put more pressure on small biotechs to deliver in future.
...Ken Lewis, Bank of America's CEO in 2008, should invoke a 'crime passionnel' defence to the lawsuit brought by New York attorney general Andrew Cuomo over allegedly misleading shareholders during the Merrill Lynch deal, since his actions really reflected his desperate attempts to break the rules to save an impossible situation.
[ p.51 ]...Alex Brummer thinks that the sliding Icap share price reflects the loss of confidence in CEO Michael Spencer as much as the surprise profit warning.
...The £286m fines paid by BAE Systems to settle the long-running bribery saga means it now has a chance to deliver on its ethical promises.
...Kraft's formal takeover of Cadbury will, alas, mean the end of the delicious carrier bags of food and chocolates regularly delivered by both sides to journalists during the bid battle.
[ p.111 ]...Peter Cunliffe thinks the 'ceasefire' agreed between BAE Systems and the UK and US authorities over corruption allegations is probably the best outcome for all concerned, especially as it has left BAE with some of the toughest compliance procedures in the defence industry.
...Even if Icap CEO Michel Spencer did not know about the deterioration in the profits outlook when he sold shares worth £45m, it remains a worry for investors as it shows management was either not on top of operations or else events were moving too quickly for them.
[ p.79 ]Royal Bank of Scotland is set to pay substantial bonuses to its investment bankers in spite of making losses of more than £7bn for 2009. RBS, 84%-owned by the State, is locked in talks with the Treasury over the size of the bonus pool, likely to be about £1.3bn in spite of the losses.
Focus: Jenny Davey and James Ashton suggest the £15m package for new Marks and Spencer CEO Marc Bolland shows that it is not just the banks that are still failing to comprehend the public outrage at such inflated remuneration.
[ pp.3.1, 3.5 ]Santander is considering plans to list its UK banking operations on the London Stock Exchange which could value them at more than £15bn. The plan is one of a number of options being looked at by the Spanish group which is also interested in buying the network of 300 branches being sold by Royal Bank of Scotland.
[ p.3.1 ]EMI boss Elio Leoni-Sceti is preparing a rescue plan for the struggling company which would strip out 'tens of millions' from the cost base while retaining key artists such as Robbie Williams. The plan will be used to persuade investors in EMI owner Terra Firma Capital Partners to inject more funds into the business or lose control to Citigroup.
[ p.3.1 ]The G7 finance ministers meeting in Canada believe there should be a 'European' solution to the debt problems facing Greece, Portugal and Spain with no need for IMF intervention. German finance minister Wolfgang Schaeuble claimed Greece's problems would not undermine the euro although he warned that sacrifices would have to be made by the heavily-indebted countries.
[ p.3.1 ]Roger Jenkins, the Barclays Bank high-flyer who quit last year to set up his own business, is working on deals targeting distressed loans and property assets held by Irish banks. Jenkins has recruited several veterans of the Irish property and banking sectors for his new venture, called Elkstone Capital and based in Dublin. He says he is not seeking to raise funds for the venture but has a 'group of people' he can call on if necessary.
[ pp.3.3, 3.10 ]Ocado is planning an IPO in May to value then online grocer at up to £1.2bn and propel it straight into the FTSE 350 index. The business is set to appoint three investment banks over the next fortnight to advise on the float, with Goldman Sachs, UBS and JP Morgan Cazenove the frontrunners.
Analysis: Jenny Davey says that not since the dot.com boom has a loss-making company commanded such a premium valuation, especially given continuing doubts over its business model which relies on Waitrose for fulfilment.
[ pp.3.3, 3.9 ]...Dominic O'Connell says it is clear that CEOs, like bankers, simply do not 'get' public anger over their excessive remuneration packages.
...Ocado may be well-run and offer great customer service, but the basic problem is what it would do if Waitrose walked away.
...The resolution of the BAE Systems bribery saga may be good for the company and shareholders, but it leaves many important questions unanswered.
...Lord Bhattacharyya, the Labour peer who runs Warwick Manufacturing Group, has a simple but effective idea for helping small businesses: lump together all the various aid schemes and you would have a £1bn fund available for innovation.
[ p.3.4 ]...David Smith thinks that a clear deficit reduction plan is needed by the next government to ease market worries.
...The end of quantitative easing will see a return to more normal monetary policy, starting with interest rates rises - although not for many months.
[ p.3.4 ]...Irwin Stelzer says President Obama's economic stimulus policy has run into reality, especially given new research suggesting that countries do not simply 'grow' their way out of deep debt problems.
[ p.3.4 ]...Ray Hutton reports on the biggest-ever crisis facing Toyota as it struggles to recover its reputation and public trust.
...Danny Fortson says it is 'oil or bust' for the four main companies involved in prospecting for oil off the Falkland Islands as they have no other assets. The four are: Borders & Southern, Desire Petroleum, Rockhopper Exploration and Falkland Oil & Gas.
[ pp.3.7, 3.11 ]The Asset Protection Agency could make a £5bn profit from the bailed-out banks rather than simply breaking even as first thought. The profit is expected to come from both Lloyds Banking Group, which is paying a £2.5bn fee for withdrawing from the protection scheme, with a similar amount eventually due from Royal Bank of Scotland when it also withdraws.
[ p.B1 ]National Express believes that a new Conservative government would allow it to re-enter the rail franchise sector in two years' time following the £1.4bn east coast mainline debacle. Labour has vowed to banish National from the rail sector, although contacts by the company with the Tories are believed to have proved more fruitful.
[ p.B1 ]Allegations that senior BAE Systems executives were implicated in bribery conspiracies were made by lawyers from the Serious Fraud Office in a magistrates court last week as part of the hearings involving Count Alfons Mensdorff-Pouilly, charged with carrying out a bribery campaign on BAE's behalf. Charges against Mensdorff-Pouilly were dropped after Friday's deal by BAE with regulators to pay a fine and plead guilty to minor charges.
[ p.15 ]...Ruth Sunderland thinks that the Conservatives rather than Labour would have a more effective industrial policy and be more supportive of the manufacturing sector if elected.
...Sir Brian Pitman is one of the 'old school' of bankers whose skills were missed by the new generation who nearly brought the banks down, although he has another chance at age 78 to prove his worth as new chairman of Virgin Money.
[ p.B6 ]...thinks the euro is facing its biggest test since inception because of the loss of exchange rate flexibility, one of the clear advantages to the UK from not joining at the outset.
[ p.B6 ]...George Davies, founder of the Per Una brand for Marks and Spencer says the biggest challenge facing new M&S CEO Marc Bolland is to 'free it from its constipated culture'.
...Larry Elliott wonders if the Greek debt crisis will mark the end of the euro, with Spain now adding to the continent's problems.
...Andrew Clark in New York says experience is increasingly taking charge in economic affairs, typified by Paul Volcker being put in control of banking reform.
...Media: Peter Preston wonders what is happening with Alexander Lebedev's supposed acquisition of Independent Newspapers; John Naughton thinks Google realises it is caught in the crossfire of the early stages of a cold war being fought in cyberspace.
[ pp.B3, B4-5, B7, B8 ]Business Secretary Lord Mandelson claims in an interview with the Sunday Telegraph that neither the US nor Europe has shown global leadership over the banking crisis. Mandelson suggested the US had particularly displayed a 'surprising' lack of international perspective over the issue. Mandelson also thinks that Labour's approach to support for business will be a key dividing line with the Tories in the election campaign.
Comment: Richard Lambert, director-general of the CBI, believes business must be the heart of the political debate as decisions taken this year will help shape the economy for years to come.
[ pp.B1, B7 ]Former BAE Systems chairman Sir Richard Evans is still apparently advising the company even though he was chairman during most of the period when the alleged bribes to win contracts were offered. BAE claimed that no one responsible for the matters under investigation still worked for the company, pointing out that Evans was not on the staff.
[ p.B1 ]...Kamal Ahmed thinks the issue of deferred bonuses has an in-built danger of rewarding people who leave senior positions without achieving the performance on which their pay is based.
...Once regarded as a paragon of corporate efficiency and virtue, Toyota is now a byword for lack of transparency, speed of reaction and basic customer focus.
[ p.B4 ]...Liam Halligan, chief economist at Prosperity Capital Management, thinks that the Tory 'wobble' over the need for aggressive spending cuts is worrying as the vast majority of the electorate knows that drastic action is needed soon.
...Without structural reform of the banking system the UK is more likely to sink under the weight of its sovereign debt, especially as another bailout of the banks is simply unaffordable.
[ p.B4 ]...Tom Stevenson, an investment commentator at Fidelity International, thinks that optimists about the economy are just as likely to be right as the pessimists - which makes selling into market jitters just as dangerous as buying in the dips.
[ p.B4 ]...Danielle Demetriou in Tokyo and Graham Ruddick in London chart the crisis that has engulfed Toyota whose president, Akio Toyoda, came to power on a wave of optimism but who now faces one of the most memorable of all falls from grace.
[ p.B6 ]GDF Suez is considering a revised £5bn bid for International Power following the collapse of bid talks last month. The French group is thought likely to offer a sweetener in the form of cash as well as shares, although any deal would have to be at a premium to the current value of just under £5bn.
[ p.79 ]Spanish prime minister Jose Luis Zapatero was said to be 'working around the clock' over the weekend to put together a package of Labour reforms to help the ailing economy and win back credibility among international investors.
Analysis: Alasdair Fotheringham reports from Spain on the continuing unemployment problem still gripping the country.
[ pp.79, 82-83 ]Citigroup is this week set to intensify the increasingly bitter battle with Guy Hands over the £4.2bn deal to buy EMI in 2007 through his Terra Firma Capital Partners vehicle. Citi is keen for the legal case to be heard in the UK rather than US, not least because this will put extra pressure on Hands who is a tax exile in Guernsey.
Inside Story: Richard Northedge says Hands firmly believes that Citigroup forced him into paying an inflated price for EMI by allegedly pretending there was a rival bidder.
[ pp.81, 86 ]...Margareta Pagano thinks that it is the markets which are again forcing politicians to act on problems such as Greece's sovereign debt crisis.
...Marks and Spencer is wrong to pick up the options owed to Marc Bolland from Wm Morrison as it was his decision to leave and so it should be up to him to take the loss.
...New York Attorney General Andrew Cuomo is picking an easy target with his attack on former Bank of America CEO Ken Lewis when he should really be focusing his efforts on crooked mortgage-brokers, CDO traders and others who fanned the financial crisis.
[ p.85 ]...Hamish McRae believes that the eurozone will hold together during the current crisis but will probably break up when the next downturn comes.
...Well-meaning policies to try to reduce regional wealth inequality between the south-east and the rest of the country are flawed and may have actually increased inequality.
[ p.84 ]The US Department of Justice is to impose an 'ethics monitor' on BAE Systems as part of the company's plea bargain with US and UK regulators to end their investigation into the company allegedly offering bribes to secure contracts. Although the monitor will be a UK national, the appointment will have to be approved by the Washington authorities.
[ p.77 ]...Lisa Buckingham thinks the Serious Fraud Office has final landed some sort of punch on BAE Systems in its long-running saga, although a score draw is probably the fairest way to view the outcome.
...An Ombudsman to regulate the supermarkets' relationship with their suppliers is the only credible way forward for the grocery sector.
[ p.80 ]Taking Stock: Simon Watkins says to expect more market volatility as the fundamental problems caused by the debt crisis have not gone away.
Economics: Dan Atkinson thinks it hard to see where public sector spending cuts will come from as most of the key areas are already 'ring-fenced'.
Outlook: BT's Q3 profits are expected at £188m, up from £113m a year ago
[ p.B4 ]The Serious Fraud Office is planning to target alleged bribery and corruption at international manufacturing and resources companies now that the probe into BAE Systems has finally ended. New legislation means that any company with a subsidiary in the UK falls within the SFO's remit. Meanwhile, General Dynamics is frontrunner ahead of BAE to win the £4bn new armoured vehicle contract from the MoD.
[ p.F1 ]...Tracey Boles thinks a gilt auction failure is likely in the near future as international investors lose confidence in the UK's determination to deal with its budget deficit.
[ p.F2 ]How golf helped an ex-Marine with a thirst for knowledge to find the sweet spot in life
Eric Gleacher, chairman of Broadpoint Gleacher Securities, has taken part in many of the landmark M&A deals on Wall Street in the past 30 years, especial in the 'heady' 1980s. But he remains unsentimental about the near-implosion of Wall Street during the financial crisis, preferring to look forward by developing Broadpoint Gleacher into a top-flight, full-service investment back. As part of this strategy, he is set this quarter to close the acquisition of London capital markets advisory firm ISM Capital.
[ pp.60-61 ]Unwrapped: Kraft's big cheese on that takeover
Irene Rosenfeld, Kraft CEO, is happy at last that the lengthy and sometimes bitter takeover battle is over, although she still finds media interviews awkward. So it is not surprising that she is keeping her plans fairly close, although insisting that Cadbury is such an icon that she would be foolish to tarnish the brand. She also admits to finding the UK media more influential on determining the takeover price than in any other market in the world.
[ p.3.6 ]"Some people will say 'you're crazy, you should be making lots of money from this'"
Andrew Witty, CEO of GlaxoSmithKline, acknowledges that healthcare will always be a controversial issue. But he refuses to apologise for making money out of the swine flu scare, pointing out that the company had to allocate many years and resources to ensure it was in a position to develop and produce the vaccine so quickly. Witty remains opposed to major mergers in the Glaxo tradition, although says he encourages new initiatives all the time.
[ p.B9 ]I'll fight to the last on pension cuts
Joanne Segars, CEO of the National Association of Pension Funds, is seeking changes to the way pension funds are accounted for and is proposing new measures to the accountancy bodies. She also wants the government to simplify the rules on company pensions and thinks all politicians should take a longer-term view than they usually do on the issue of saving for retirement.
[ p.83 ]Akio Toyoda, CEO of Toyota, has remained virtually invisible for weeks during the 'worst-handled auto-recall in history', according to many industry experts. But his late-in-the-day show of remorse on Friday night may not be enough to appease his critics, especially in foreign markets where all the recalled cars were sold. But even in Japan, questions are beginning to surface about his leadership ability.
[ p.11 ]