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 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 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 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 to prepare sites for new projects.
ROSE REFLECTS ON A 47 PERCENT RISE AT M&S
Marks and Spencer 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. 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, 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 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 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.
Prepared for Reuters by Durrants
Keywords: PRESS DIGEST Financial Times June 11
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