Markets Live: Thursday, 31st January, 2013 This is the transcript of the Markets Live session ending at 12:10 on 31 Jan 2013. Participants in this session were: Paul Murphy Bryce Elder Neil Collins We had a few tech problems yesterday Hopefully those are sorted now Robert from FT Labs is on hand (in the background0 just in case And so too is Neil Collins! Neil has provided our Portrait for Today Which will help us address the gender inbalance That's the er, saintly (?) Alison Carnwarth have i spelt that right? Not quite sure whether she deserves her position.... Neil - do you want to explain why she is our Portrait today? but here's today's paper quoting her yesterday Alison Carnwath told the commission that Mr Diamond was reluctant to accept that pay was high, adding that he "thought he found loyalty in people around him by paying them a lot of money." It's an interesting definition of loyalty it's usually applied to mercenaries The white times reports that she eventually voted in favour of Diamond Bob's bonus quoting a rather catty, anonymous Barclays source so pick the bones out of that, if you can I'm starting to feel sorry for bankers Are you feeling alright, Paul? Bankers warned on heart problems as young deaths reported As the year progresses and healthy resolutions start to slip, academics and cardiologists are warning bankers to watch for heart conditions. Dr. Duncan Dymond, a consultant cardiologist at Bart's Hospital in London said traders tend to be most susceptible to heart problems: "They drink too much alcohol, have too little sleep and too much caffeine and use too much cocaine, leading to atrial fibrillation at a younger age. There are also bankers in their late 40s and early 50s who have hypertension and coronary artery disease as a result of being overweight and leading a sedentary lifestyle. Professor Mika Kivimäki of the Epidemiology & Public Health Department at University College London said the key predictors of heart disease are smoking, high blood pressure, high cholesterol. However, workplace factors also have an important role to play, said Kivimäki. "We conducted a study of 200,000 people which showed that high work load and high work expectations, combined with a lack of control over the work environment lead to a 20% increase in the risk of heart disease," he said. That's from Sarah Butcher over at eFinancial Careers I think she's described your lifestyle pretty accurately Use too much cocaine ..... Is there a right amount of cocaine to use, doctor? Neil, what are you accusing me of? Can the doctor give me exact prescriptions here? Perhaps in the form of £100 measures? More importantly, bankers have to deal with all this crap coming out of the FSA They drink too much alcohol, have too little sleep and too much caffeine you seen this stuff on swap mis-selling? Glanced at it. Assumed it was noise. Just read thru this if ytou can The Financial Services Authority (FSA) has confirmed that Barclays, HSBC, Lloyds and RBS will start the full review of their sales of interest rate hedging products (IRHPs) to small businesses. In June last year, the FSA announced that it had found serious failings in the sale of IRHPs. Today's announcement means that these banks have agreed to work on reviewing individual sales and providing redress to customers based on principles outlined in today's FSA report, and overseen by independent reviewers. The decision follows intensive work by the FSA to scrutinise the pilot review of sales carried out by the banks and the independent reviewers. The pilot was established to allow the FSA to consider the banks" proposed approaches to reviewing sales and to ensure they would deliver the right outcome for customers. The FSA considered files containing all the evidence on individual sales of IRHPs, together with the bank's and the independent reviewer's assessment of each file. Evidence from customers has also been very important in assessing sales. In addition, the independent reviewers have provided reports covering matters such as areas of disagreement between the reviewer and the bank. The work on the pilot has confirmed the FSA's initial findings of mis-selling of IRHPs. The FSA looked at 173 sales to non sophisticated customers and found that over 90% of the sales did not comply with at least one or more regulatory requirement. A significant proportion of these 173 cases are likely to result in redress being due to the customer. However, the small number of typically more complex cases in the sample may not be representative of all IRHP sales. The pilot has also enabled the FSA to consider the principles that should govern the review. As a result, the FSA has revised the eligibility criteria to ensure that the review is focused on those small businesses that were unlikely to understand the risks associated with those products. This might include, for example, bed and breakfast businesses which would previously have been ineligible due to their large numbers of seasonal workers. At the same time, some businesses that fell under the criteria published last June will be excluded. These include, for example, small subsidiaries of multi-national corporations, or Special Purpose Vehicles that are sophisticated enough to have understood the terms of the product or have sufficient resources to obtain advice. Where redress is due, the FSA has reiterated the fundamental principle that it must be fair and reasonable for individual customers. Is there anything the banks have not mis-sold in the last decade? They've been doing intensive work on a pilot review, for about 8 months still pretty damning, though, even if we've heard it before Am i missing something Are bed and breakfast businesses...like...B&Bs? And shy should they have large numbers of season workers? Anyway, i will shut up I guess if they're Blackpool B&B's working summer season. And it's 1953. Bully-Banks.co.uk already has its soundbite up. "This is a Polo settlement - it has a fundamental hole in the middle, with no definition of what is "fair and reasonable," what actual redress businesses will receive, nor any deadline for resolution. get your retribution in first... As for serious comment, Ian Morgan from Investec's first out of the traps. Anyway, he says "no big whoop," basically. Or, rather, "no big whoop whoop in comparison to the big whoops." Today's statement from the FSA is inconclusive. Some may be alarmed by the claim that "over 90% of the [reviewed] sales did not comply with at least one or more regulatory requirement," but there appears to be some sense of balance. Although a costly review of all interest rate swap sales, (c.28000 sold by "the big 4" since 2001), is now underway, unlike PPI, there is not an near-automatic presumption of guilt. We estimate that the incremental cost to the industry here could be c. £1bn. The FSA's statement is brief and, in essence, merely confirms the launch of a full review of sales of interest rate swaps to small businesses by Barclays (Buy), RBS (Sell), HSBC (Hold) and Lloyds (Sell). An announcement in relation to Allied Irish Bank (UK), Bank of Ireland, Clydesdale and Yorkshire banks, Co-op and Santander UK will follow later, but in relative terms, they are small beer. A pilot review of 173 sales to non-sophisticated customers has led to the FSA's preliminary conclusion that over 90% of sales were non-compliant. This provides the regulatory justification for what will likely prove to be an extremely costly and time-consuming case-by-case review to establish which customers are entitled to receive redress. It may prove premature to assume a framework that will deliver a proportionate result, but at least the banks will draw some comfort from deliberate exclusions, e.g. SPVs that are sophisticated enough to have understood the terms of the product or have sufficient resources to obtain advice We are not expecting the banks to provide any immediate fresh quantification of the likely total cost of this saga, although we do expect updates, accompanied by fresh charges in the low hundreds of millions, to be forthcoming with 2012 full-year results in February/March. Thus far, Barclays has taken £450m. Anecdotal evidence from Bully- Banks.co.uk (a campaign website focused on the issue of mis-selling of IRSAs) and elsewhere suggests that it is the most exposed, but it has also moved faster than peers to recognise likely costs. We currently estimate that its eventual cost will be c.£1bn. HSBC has provided c.£200m, RBS c.£100m and Lloyds nothing at all. We currently believe that RBS and Lloyds will have just a few hundred million (each) to recognise by way of incremental charges - not material relative to charges of £5.3bn (Lloyds) and £1.7bn (RBS) - and counting - for PPI redress. Standard Chartered (Buy) thankfully still offers a safe-haven from ongoing UK customer redress issues! Standard Chartered PLC (STAN:LSE): Last: 1,672, down 3 (-0.18%), High: 1,678, Low: 1,656, Volume: 731.43kBlock Lloyds Banking Group plc (LLOY:LSE): Last: 50.96, down 0.076 (-0.15%), High: 51.24, Low: 50.56, Volume: 44.84mBlock Barclays PLC (BARC:LSE): Last: 297.10, down 4.9 (-1.62%), High: 302.85, Low: 294.60, Volume: 31.39mBlock Royal Bank of Scotland Group PLC (RBS:LSE): Last: 338.70, down 8.5 (-2.45%), High: 347.64, Low: 336.50, Volume: 4.98mBlock Ive got some CS also on this Carla Antunes-Silva Banks more involved in the review process - Although the option was considered, the FSA did not go down the route of establishing a special scheme where the Financial Ombudsman would deal with complaints from customers (as was the case for PPI mis-selling). In our view, this is an important point, as banks will be driving the process and it will be up to them to identify and redress customers that were mis-sold which could reduce significantly procedural costs vs. PPI cases. ■ The FSA is setting guidelines for the review process that each bank will have to follow, especially more details are given as to the definition of a "nonsophisticated" SME customer with the introduction of both quantitative metrics and more qualitative criteria. The regulator also highlights that each bank will have to appoint independent reviewers to conduct the reviews. The four major UK banks are expected to conduct the review within a period of 6- 12 months and redress customers where necessary. So far the four major UK banks have set aside c.£650m of provisions for IRHP mis-selling, mainly in Q2 last year following the initial settlement agreement with the FSA. RBS provisioned £50m, Barclays £450m, HSBC set aside $237m, while Lloyds indicated in its Q2 report that it was not expecting the costs to be material for them. This compares to a much larger c.£12bn of PPI provisions set aside so far. Given the fact that banks are more involved in the review, we would expect the total cost for IRHP misselling to be lower than the cost of PPI but we would expect further provision to be taken over H1 2013. Please see table overleaf with summary costs for the banks in the last three years. Are you going to ask for the table? Can we have the table please? With PPI claims having increased significantly over Q4 2012, we see this announcement as further evidence of how customer redress costs are going to remain an important issue and will likely continue to weigh on earnings and internal capital generation. In the UK, our only OP is HSBC (TP 750p) and within the UK domestic banks, our preference remains for Lloyds Banking Group (N, TP 45p), followed by Barclays (N, TP 250p) and RBS (UP, TP 250p). The following tables show the reserves banks have taken along with additional costs where there was no provision set aside over the last four years. As a whole we estimate that the banks under our coverage incurred a cumulative €30bn of litigation charges i.e. 3% of 2012e TNAV. Most of these charges were taken in 2011 and 2012 and are largely concentrated on UK and IB names. Note that some of the banks have given very limited disclosure for these costs and so have not been included in the table below. So the price reaction is muted Okay, wider market I guess. And, in recent context, the FTSE's slumping Down 33 points at 6289 A market that moves! Though do bear in mind we're coming off our biggest monthly gain since ... October 2011 I think? (That's by memory. Feel free to correct me, rabble.) And the best start to the year in basically forever. Twenty-something years. So you are pinning this down to generalised profit taking? Yeah, it seems that way. Movers-wise, Evraz down even as steel hits a four-month high EVRAZ plc (EVR:LSE): Last: 283.80, down 7.4 (-2.54%), High: 302.60, Low: 283.60, Volume: 479.28kBlock Notice two of its oligarchs slotted this week. Sage getting run back down, having been run up a bit yesterday. The Sage Group PLC (SGE:LSE): Last: 324.40, down 7.2 (-2.17%), High: 332.00, Low: 323.80, Volume: 770.64kBlock Mentioned PE bid rumours in the paper this morning. Mentioned them in the past tense though. And, leading us down, we have AstraZeneca ..... AstraZeneca PLC (AZN:LSE): Last: 2,984, down 169 (-5.36%), High: 3,065, Low: 2,951, Volume: 3.59mBlock You moved off the mining sector before I had a chance to share this piece of UC RUSAL Announces Facebook Quiz Winners * Fascinating Facts about Aluminium Unveiled on "Friends of Russia" Facebook Page Hong Kong, 31 January 2013 - UC RUSAL (SEHK: 486, Euronext: RUSAL/RUAL, Moscow Exchange: RUALR/RUALRS), the world's largest aluminium producer, today announced the winners and the answers of the Facebook Quiz. Participants can view the results on the "Friends of Russia" Facebook Page. To celebrate the third anniversary of its official presence in Hong Kong as a listed company, RUSAL launched the Facebook Quiz on 2 January 2013 on RUSAL‟s "Friends of Russia" Facebook page. The final answers of the Quiz were posted on the "Friends of Russia" Facebook page (http://www.facebook.com/friends.russia) on 28 January 2013. Comprising a total of 13 questions, in line with the fact that, aluminium, RUSAL‟s major product, is the 13th element in the chemical periodic table, RUSAL‟s Facebook Quiz scored success, with a strong response of more than 1,800 participants and the "LIKE"s hits of the "Friends of Russia" Facebook Page reaching more than 5,200. Participants have had a chance to learn more about the unique properties and wide application of aluminium. Winners are to be rewarded for their efforts with exciting prizes including an iPad Mini and a Nespresso Coffee Machine. Other prizes include the "From Russia with Love" Guidebook. Crap that appears in my inbox In Russia, Facebook friends you. New guy's kitchen sinked the thing. 2013 guidance rebased. No buyback for 2013. No guidance whatsoever for 2014. at least that's a step in the right direction the no buy back, I mean Well, you can say that. But, most peculiarly, there's no guidance at all on strategy. I know their big day's March, but we were expecting something Just a hint. A suggestion that New Bloke has the inklings of a plan. But, nope. Just a thumping great rebasing of guidance and a shrug as to the future. People would like to see AZ maybe diversify away from patent litigation, maybe move into drugs or something They could make some drugs that work. I mean, work enough so they get to the point that they can sell them. Goodness, we are bad tempered this morning But then the stock is off 5.6% now So here's the conference call highlights. Which, when you think about it for even a second, is stating the obvious. So he's going to fix the complicated company problem perhaps with a disruptive acquisition? Need to see the full text of this interview if and when it appears Well, he's committed to investing for long-term growth. As opposed to investing for short-term value destruction. So that's a relief. they've already achieved that True. So here's what's happening to forecasts. Morgan Stanley's shop, I think. FY12 summary vs consensus: Sales down 17% to $28bn (in line) with core EBIT down 25% to $10.4bn (9% ahead) helped by better gross margin, lower expenses and higher other income. EPS down 17% to $6.41, vs consensus at $6.21 ($0.18 benefit from release of deferred tax balances relating to Swedish corporation tax falling from 26% to 22%). EM (20% of sales) posted 6% growth in Q4, with Brazil and Mexico continuing to be a drag FY13 guidance implies 14% EPS downgrades: Sales to decline "mid to high single" digit CER with core operating costs to "rise slightly" to allow for investment in the business (R&D still likely to trend down). Assuming a core tax rate of 22%, and a potential FX headwind of 1-2% based on spot rates holding in 2013, implies a revenue range of $25-26bn (consensus at $27bn, MS at $26bn) and "revised core" EPS range of $4.80-5.20 (mid point 14% below consensus, 7% below our estimate). Big thump. Looks like the buyside has anticipated much of it, but still a big thump. Progressive dividend policy intact: FY12 DPS +1% to $2.80. The assessment of dividend cover going forward will be based on 2x "revised core" earnings with the board recognising "cover in any one year will vary from the 2x target through the investment cycle." Unsurprisingly, no buyback has been reinitiated and the previous 2014 long-term guidance has been removed. Wild-card potential but no need to rush in ahead of strategy day: The challenges facing AZN are stark, compounded by a continued lack of traction for supposed growth drivers Brilinta and Bydureon (pen-device filing mid-2013 critical to improving performance). That said, we believe AZN is in effect giving floor guidance, allowing management to focus efforts on returning to revenue growth post the US Crestor patent cliff in 2016 (12% of sales). With the pipeline review mostly complete (39 assets progressed or entered pipeline, 19 withdrawn) we do not expect the new CEO to make any incremental remarks on strategy ahead of the capital markets day in NYC (March 21). And Merrill has much the same idea. guidance implications for FY13E EPS: 1) We assume guidance for revenue declines of mid to high single digit, implies c7%, c4% lower than consensus; 2) Core operating costs are expected to be slightly higher than 2012, which we assume implies c2% growth vs consensus assumptions broadly flat; 3) Guidance is for core other income less than $600m; 4) We assume some gross margin improvement (no commentary provided) as declining Merck royalties and increasing BMY JV income offset mix decline; 5) Tax rate of 23% vs our prior 22% assumption. Overall, the above implies FY13E sales of c$26bn, EBIT of $8.6bn and EPS of c$5.10 (vs consensus at c$5.80). So that's the rebasing of expectations done (which we could also call a profit warning, but won't). David Brennan, the previous CEO, was rebased with £4.5m Should we look at the pubs? Mitchells & butler? Enterprise and Mitchells both reporting today. M&B winning the battle, if not the war. sharpo little comment from Mark Brumby which I liked Mitchells and Butlers PLC (MAB:LSE): Last: 320.70, up 24.7 (+8.34%), High: 321.40, Low: 296.00, Volume: 611.16kBlock Enterprise Inns PLC (ETI:LSE): Last: 89.40, down 9.3 (-9.42%), High: 94.50, Low: 87.65, Volume: 2.83mBlock it is hard to see how the current major shareholders could benefit their own positions without benefitting independent shareholders into the bargain, Do we still have a spy at St Katherine's Dock looking out for Joe Lewis's yacht? had forgotten about that It's difficult to miss. it's not the one in the front of the picture... Sadly, no. He doesn't have to row it himself. "Aviva III," it's called. Anyway, Mitchells. Group lfl sales are -0.3% after 17 weeks Against -0.1% after 8 weeks. But the trend improved 1% after 14 weeks. Are you following all this? Sorry, was distracted (Alida's back. She helped build the Long Room. So was just saying hello) (Oh! Alida! That's good.) Anyway, it seems the trend makes it look like 2013 is on track. So, rally. That's about it really. Peel Hunt summarise. The negative LFL 17 weeks" sales figure should not come as a surprise and could have been worse. Furthermore, the recent weakness in the share price means the rating is looking relatively good value. However, there is no dividend and the benefit of the cultural changes will take time to come through to the bottom line. Snow impact: There should be few surprises that 17 week LFL sales slipped into negative territory, -0.3%, given the snow impact over the last few weeks. Prior to this LFL sales were 1.0% positive - still relatively anaemic compared with the peer group, but within the 1-2% guidance for the year. In many respects, the current trading figure could have been worse, and we see no reason to change move our forecasts for the year to September 2013.  Not dear, but not exciting: The 7x EBITDA multiple is not demanding, particularly given the quality of the estate. We also like the changes to the business's culture, but these will take time to come through to the bottom line. In the meantime, limited top-line growth and the lack of a dividend mean that sustained outperformance is unlikely. And, as for Enterprise ........... Not a disaster, but they've more than doubled in a year. So a small downgrade has a big effect. Geof Collyer as Deutsche Bank follows this one closest, so here he is. Enterprise Inns has reported lfl net income down 4.4% for the 17 weeks to 26 January. This is below our -1.2%, which we thought could be a bit optimistic in our preview given the recent comments from Marston's about snow impacted trading in the middle two weeks on January. Enterprise estimates the impact of this decline to be around £5m. We knew about the £1m or so hit from the collapse of the group's wine and spirits supplier WaverleyTSB, because management talked about it on the final results meeting in November. At the same meeting, the COO talked about a poor October, which was included in our lfl net income lfl forecast hit that was worth around -£1.5m, so the net impact to our full year numbers looks to be about -£2-3m. This means that the £198.5m of net cash generation (after £65m of capex and including £150m of disposal proceeds) that we were forecasting for FY"13E could now be about £196m. Disposals are on track for our forecast, and onethird of these are either in the bag (bank) or are about to be. Average prices for the sold sites at £363k per pub and £500k for those currently with solicitors are higher than the run rate in FY"12, which suggests that a reasonable proportion of these - we estimate around 20 of the 49 - are top end sites, being sold for more than £750k each. We have trimmed our EBITDA forecast by £2.5m from £322.6m to £320m, which translates into a 2% EPS downgrade. Small beer, in the context of the group's rehabilitation, which remains on track. We were forecasting lfl net income in negative territory for H1 and in growth in H2. The pub sector is not like yesterday's papers - pent up demand can be satisfied at a later time, and the experience of the sector over the past year suggests that when the time is right, and customers can actually get to the pub, they will spend. The shares have already reacted in advance of the Q1 IMS, by dropping back from 104p at the beginning of the year to last night's close of 97p. We expect the market will over-react to the worse than expected lfl numbers but that should be taken as a buying opportunity. The shares are still cheap - see table bottom right. Okay - bored of trading updates. How about the grocers? Anything going on there? Other than horse DNA etc Interesting (I thought) comment from Caroline Gulliver at Espirito Tesco has this morning issued a follow-up statement to the "horse meat" scandal of two weeks ago. Tesco has promised to increase its testing of products and will now introduce a "comprehensive system of DNA testing across our meat products." Moreover this will be "a significant investment for Tesco, borne by Tesco." We expect this to reassure consumers and draw a line under the incident. Our sell recommendation on Tesco is driven by our UK consumer survey results which show that, as of November, Tesco had yet to convince customers that the offer had materially changed for the better. Thus we fear that driving positive LFL sales growth, in line with the market, and maintaining a stable UK operating margin of c. 5.2% in 2013 may be difficult. We will see in our next set of survey results whether consumer attitudes are starting to change. With the stock having rallied 13% in the past quarter, and trading on 13.0x our calendar 2013 below consensus EPS forecast we remain sellers. Weak today - down 1.5p at 356 That was yesterday, but still interesting IMO All the supermarkets are, really. Guess just in line with the wider market Kantor data this week were lacklustre. And Morrison looks in a real bind. WM Morrison Supermarkets P L C (MRW:LSE): Last: 251.70, down 0.5 (-0.20%), High: 253.63, Low: 251.57, Volume: 1.08mBlock Needs to figure out a strategy, and quick. Ant & Dec advertisments will only get you so far. I'd be cautious into their next results, for what it's worth. There's a statement out from the Irish supplier of the horse meat esco have dropped them as a supplier We in ABP Food Group acknowledge the Tesco Statement of this morning. We understand their decision to stop sourcing from Silvercrest Foods but also welcome their decision to continue sourcing fresh beef from other ABP companies. The ABP Food Group has developed a very strong business - based on trust. We have let our customers down in this incident and we apologise for this. Paul Finnerty, ABP Food Group CEO said: "We have learnt important lessons from this incident and we are determined to ensure that this never happens again." We have already implemented total management change at the Silvercrest facility - which remains closed. We also have effected a Group Re-organisation to better manage our Convenience foods business. We have put in place new procedures to audit all our third party suppliers. We have also established comprehensive DNA testing procedures - we will become an industry leader in this area. We are proud of our excellent reputation for quality and service throughout Europe and are determined not to allow the Silvercrest incident overshadow what is a great business. This is Larry Goodman's business right? Neil - you used to ban us form calling him the Baron of Beef But that's what he is or was, right? Well worth reading, that piece. From a week or so ago. To be fair to him and Tesco, I think they've handled this as well as possible especially considering that there really isn't a public health issue Well, I'll be fair to Tesco. But from Goodman there's much eating of humble pie on show. made from at least 40% cow... Possible equine air contamination. Anyway, let's move on Oh, meant to mention this earlier. Michael Hartnett at Merrill has been pitching his Thundering Thingy note around the City over the past week or so. You remember - The Great Reinflation Search back. It's worth a read. And he's put together the feedback from the London clients. As ever, it's readable stuff. All mouth and no trousers There is a clear "sellers strike" in both equities and bonds right now; no-one wants to fight the Fed and risk assets are seen as impressively resilient to bad news (e.g. Monte de Paschi); in London there was more pushback to the idea of higher bond yields than higher equity prices; while the rhetoric is very bullish ("equities will rise 30% this year") many argue investors are much less bullishly positioned in equity markets; hedge funds are in risk-on mode, while LO are reducing HY positions, raising equity weightings (though not fast enough in Japan) and some are experiencing inflows (industry data are likely to reveal another big week of equity inflows this week); there were notably few worries in London over the recent tax increases in the US. You know the best thing about London these days? No English people live there. Anonymous, 2013 The safe haven bid has vanished. The favored trade is to sell "safe havens," e.g. the Swiss franc, the DAX, Apple and other beneficiaries of the fear trade in recent years. London real estate, buoyed greatly by foreign buying in recent years, is another vulnerable "trophy asset" as structurally lower oil prices and wealth and reduced European instability is seen to reduce the bid. Some express these views through long Swiss equities/short DAX or long FTSE/short sterling trades. "It ain't 1994," he says. Interest rates are not seen as a big threat by the majority of clients. Very few expect a. the labor market to induce a big rise in yields, b. the Fed to allow yields to rise much above 2.5% and c. the economy or the debt situation in the US to permit a rise in yields to be large and permanent. Demographics and the regulatory background were also stated as reasons for low and stable rates. Inflation is possible, but unlikely. At a client dinner, no-one thought the 10-year Treasury yield would exceed 3% by year-end Clients think the Great Rotation is likely, just not this year. Cash is as likely to fund equity purchases as bonds and there was pushback to the view that the period of maximum ease was behind us: the Fed is still pumping; Japan just getting started. Put simply more clients believe its Jan 1993, than Jan 1994, and 2013 has a bullish, reflationary, high liquidity-higher growth outlook. A steeper global yield curve is expected, and this is thought to be bullish for bank stocks. There are worries that a European policy mistake is being made, as the ECB balance sheet shrinks and causes a stronger Euro. But more than 2/3 clients believe the Euro would need to exceed 1.45 versus the US dollar before hurting the German economy. And one more chunk on yield fetishism and oil. Managers of High Net Worth money noted that private clients are increasingly sellers of gold, have increasingly unrealistic expectations of expected returns from fixed income and are using margin to buy high yield bonds. The lust for yield continues. Few investors seem to care about commodities (there was agreement that the secular bull market in commodities ended around around the same time Brazil, Russia and Qatar were announced as the hosts for the next three World Cups). But the were lots of questions as to why EM has underperformed YTD. Our view: sentiment became too bullish; profits have been taken in the massive EM consumer bull market in Mexico, Indonesia and Turkey and the money has not rotated to BRIC but rather a. cheaper large cap multinationals in Europe and the US that have exposure to the EM wealth theme and b. to Frontier markets in Africa, Middle-East and Cambodia/Laos/Myanmar. Many investors are fascinated by Francisco Blanche's view that WTI could fall to $50/barrel in coming years. A strong dollar-weak commodity backdrop is seen as less helpful for EM. We think the "peak oil" theme has played itself out convincingly across many equity markets and sectors in recent quarters (all the big outperformance in recent quarters has come from countries (e.g. Japan, peripheral Europe, India, Turkey) and sectors (e.g. consumer discretionary, banks) that do well when oil prices fall. This also suggests that the combo of rising yields and rising oil prices this year would be a big negative surprise to many. It's in the usual place We havent anything to add on this Rajoy slush fund allegations Pretty eye catching tho Spanish 10yr popped out to 5.25% tho Should we be too surprised? Odd trade on the tape .... That'll get the arbs excited. A.G.Barr PLC (BAG:LSE): Last: 537.00, up 11 (+2.09%), High: 537.00, Low: 523.99, Volume: 2.26mBlock Is taht merger still going on? Yeah - timetable's extended I think. Trading very close to the terms. OFT decision was due this week, got a fortnight's extension, I think Looks a done deal to me, and everyone else I thought, but what do I know? Clearly very little. Some mention of Fags on the right. Antofagasta PLC (ANTO:LSE): Last: 1,159, down 10 (-0.86%), High: 1,162, Low: 1,084, Volume: 1.28mBlock Still a choppy market post yesterday's warning that costs were out of control. Trouble here, I suspect, is that Fags trades at a premium to the miners Because it's a pure play on copper and a relatively simple story. So we're now going through a bit of soul searching over whether that premium's deserved If it's becoming a high-cost producer. Credit Suisse was good on this theme this morning. Liam Fitzpatrick's the analyst. ANTO has been a go-to stock for the past three years due to the company's strong growth delivery, consistent strategy and strong balance sheet. We now see the company's premium rating at risk: we have flagged the company's lack of growth over the next 3-4 years for some time and the worse-than-expected cost guidance provided yesterday has added to this concern. We expect large consensus downgrades to flow through in 1H13 and with the current valuation premium someway above the historical average, we expect the shares to continue to underperform. We downgrade our rating to Underperform (from Neutral) and cut our TP to £11.5 (from £13). Risk to numbers: 2013 cost guidance provided yesterday disappointed the market through a combination of higher-than-expected YoY inflation and lower by-product credits. We see this as more a step-change in the cost profile than a temporary 2013 issue, although expect 2014 unit costs to be similar to 2013 (rather than further steep increases). We reduce 2013/14 EPS by 8-9% and are now 20% below consensus. Future strategy: ANTO could target higher cash returns (above the historical 35% payout ratio) or continue with longer-term growth, but is unlikely to be able to do both on a sustainable basis given high capex needs on new projects. We expect the longer-term growth focus to remain but a temporary increase in the 2012 dividend is possible (and in our estimates). And SocGen. Similar theme. Antofagasta shares declined by c7% yesterday, after the company gave disappointing cost guidance for 2013. However, despite the correction, we see significant further downside to the name for the following reasons. 1) Our new 2013e EPS forecasts are 13% below consensus (11% if we use spot commodity prices). 2) Anto has historically traded at a premium to the sector. It is currently trading at 14.3x 2013e P/E vs 9.3x for sector and Kazakhmys. This premium has been a result of several factors including Anto's significant growth profile, low cost position, strong balance sheet and a very conservative and sensible management team. We continue to have high regard for Anto's management team but many other reasons for Antofagasta's valuation premium are getting eroded. After the company suspended its Antucoya project in December, the company has no major, active growth project. In addition, the company was contemplating several other projects in the vicinity of Antucoya. As Antucoya is being suspended given significant cost inflation, it is fair to assume that even the other projects may not really take off. Without these projects, Antofagasta will have one of the most anaemic growth profile in our coverage universe. Antofagasta is also losing its low cost edge given significant upcoming cost inflation in 2013e and many other mining companies have also strengthened their balance sheet in the last few years. We've just got details on Lord Coe selling himself to Chime Sold himself for 15 years On 26 October 2012, Chime, the international communications and sports marketing group, announced that it had entered into an option agreement with Lord Coe whereby on exercise of the option it would acquire Lord Coe's 93% interest in CLG. That option has now been exercised and the acquisition has been completed. Lord Coe has now been appointed Executive Chairman of CSM Sport and Entertainment. CLG owns the rights to all Lord Coe's income streams over the next fifteen years. Primarily, these income streams constitute commissions, royalties and consulting income. Lord Coe is one of the most high profile figures in world sport and the proposed acquisition of CLG will assist CSM Sport & Entertainment in its ambition to become one of the top three sports and entertainment businesses in the world. On completion Chime paid an initial £1.96 million in cash (an increase from the £1.5 million referred to in the announcement dated 26 October 2012 reflecting the level of net assets on closing). In addition deferred consideration capped at £10.2 million is payable over the period to March 2017 on the achievement of various financial targets. Gross assets on completion were £764,000. In the year to December 2012 CLG's pretax profit was £154,000. The transaction is expected to be immediately earnings enhancing. Best illustrate that with a picture of the great man. Steady on. Not in this climate. CLG owns the rights to all Lord Coe's income streams over the next fifteen years.  That really is beyond parody, isn't it? He's remortgaged himself. I'll offer the rights to my income streams for the next 15 years I'll offer to pay anyone if they'll bear the rights to my net income streams over the next 15 years. To be clear, it's unlikely to be a positive number. Anyway, I think we're done now. And thank you Rabble The Libyan Investment Authority still have 2.99% of Pearson- according to Reuters 3.25% on Bloomberg. You don't pick your shareholders, just as we don't pick our readers.