Sunday newspaper round-up: Stock market crash, Xstrata, Tesco

Date: Sunday 05 Feb 2012

The London stock market could slump by as much as 30% - with financial shares collapsing by 60% - if the Eurozone debt crisis leads to a break-up of the single currency. The warning comes as Greece battles to reach a deal with creditors to write off €100bn (£83bn) of debt and for a fresh €130bn bailout from the International Monetary Fund. Talks have dragged on for weeks, but officials claimed this weekend that a deal was close, though similar claims have been made weekly for the past month. The potential damage from a Eurozone collapse is outlined this weekend by financial IT group SunGard, which provides its APT economic modelling software to 200 investment firms, including hedge funds and sovereign wealth funds. Its analysis suggests that shares in London would fall by about 5% if Greece quit the euro. The drop would be as much as 15% if it was joined by Portugal, Italy, Ireland and Spain. If the entire single currency zone broke up, the London market is expected to fall by up to 30%, The Financial Mail on Sunday reports.

Half of Xstrata’s top ten shareholders are angry the mining giant has so far failed to engage with them and that a “merger of equals” could be considered without a premium to compensate for what one investor referred to as Glencore’s “lower quality earnings”. All five shareholders spoken to said the chairman and chief executive’s jobs were at risk if a significant premium was not offered from the outset. It is understood the two boards are now discussing a premium of 11-12%, depending on currency fluctuations, with Glencore believed to have lined up a substantial debt facility underwritten by Citigroup and Morgan Stanley. It can also be revealed that Mr Davis stands to collect in the region of £11m as the result of change of control clauses in his service contract, The Telegraph reports.

The household consumer giant Reckitt Benckiser is set to ditch quarterly reporting of profits amid fears that the long-term growth of the company is under threat. In a move which is likely to lead to downward pressure on the share price, Rakesh Kapoor, the new chief executive, is also expected to announce that the company is shifting its emphasis from America and Europe, where consumers have cut back drastically on their spending, towards emerging markets, especially China where very few of its brands are sold, The Telegraph says.

David Webster is to stand down as chairman of InterContinental Hotels Group after eight years. Mr Webster, the co-founder and former chairman of supermarket chain Safeway, is one of the longest standing chairmen in the FTSE100. It is understood he informed the board of his decision to depart just before Christmas. An external search is underway and headhunters have been appointed. The senior independent director, David Kappler, is overseeing the process on behalf of the board. Possible candidates to replace Mr Webster include Sir Stuart Rose, the former chairman of Marks and Spencer, and Allan Leighton, the former Royal Mail chairman. One internal candidate is thought to exist in the shape of Luke Mayhew, the former managing director of retailer John Lewis, The Telegraph reports.

The £55bn merger of Glencore and Xstrata, likely to be confirmed on Tuesday, is a personal coup for Glasenberg and Mick Davis. It also has profound ramifications for the world economy. The marriage will unite Glencore’s army of razor-sharp traders — think of them as the Goldman Sachs of zinc, copper, wheat, coal and oil — with Xstrata’s globe-spanning portfolio of mines, stretching from the Australian outback to South Africa and the Peruvian Andes. They’re like a married couple. They have a mutual respect, but also shout and scream at each other. The resulting entity would employ more than 120,000 people on five continents and be able to reap billions by providing us all with the basics of modern life, from the corn on your plate to the cutlery you use to eat it. A brash new player with that kind of power would be sure to give rivals and big consumers of raw materials, such as resources-hungry China, pause for thought, The Times reports.

Barclays Bank is expected to curtail its bonus payouts and cut staff salaries after being stung by investor pressure led by the Association of British Insurers (ABI). Rob Burgeman, divisional director of Brewin Dolphin, will be watching if Barclays decides to raise its dividend after the ABI called for it to “rebalance” the allocation of returns to employees and investors. “What are they going to do with the dividend? That is a way of demonstrating that it is being run by the interest of shareholders and not just the people inside them,” said Burgeman. “The pressure from institutions for some signs of moderation are mounting.” The bank is expected to announce a pay cut of up to 30% for 24,000 employees at BarCap as it responds to public fury over bankers’ bonuses, while chief executive Bob Diamond’s bonus could be slashed from an estimated £10m to between £2m and £3m, writes Scotland on Sunday.

The significance of this week’s MPC meeting is that the £75bn announced in October has been completed. In meetings since then, committee members said they would decide whether to do more QE when the latest batch was done. That moment has arrived. A “cautious” MPC will announce a further £50 bn, according to Philip Shaw of Investec and Nick Stamenkovic of Ria Capital. Shaw cites evidence of operational constraints on the Bank — its appetite for gilt purchases may be greater than the markets’ willingness to sell — while Stamenkovic points to the Bank’s January minutes as signalling that some members are uneasy about repeating the October dose. But both Michael Saunders of Citi and Geoff Dicks of Novus Capital think it will be another £75bn. Saunders believes the Bank can carry on buying until QE reaches £600bn, nearly 40% of GDP. That would leave £800bn of gilts still in circulation, enough for institutional investors such as pension funds, writes The Times.

Oil giant BP is expected to announce its first dividend increase since the Gulf of Mexico oil spill when it unveils fourth-quarter figures on Tuesday. Shares are just 2% lower than a year ago and have recovered 31% since the 2011 low in September as oil prices remained close to the $100 a barrel mark and optimism rose over its recovery following the fatal Deepwater Horizon explosion. City analysts forecast a fourth-quarter dividend of 8 cents a share, up from 7 cents in the previous quarter, which will be watched closely as it accounts for £1 in every £6 invested by pension schemes. However, the company’s earnings are expected to have come under pressure in the final three months of the year as its refining business suffers from squeezed margins and its production levels come down amid further disposals, Scotland on Sunday says.

Tesco is being forced to bow to the power of Amazon and undercut its own website prices in order to compete in the online marketplace. Under a new policy of disclosure by Amazon, the supermarket giant has been revealed as the ultimate seller of a range of goods – including DVDs and computer games – marketed on Amazon under the trading name of Oakwood Distribution Ltd. Oakwood is a subsidiary of Tesco. An investigation by Financial Mail found that the price of numerous items, including a box set of the first BBC series of Downton Abbey and a Super Mario computer game, were far cheaper when sold by Oakwood Distribution on Amazon than through the Tesco website, The Financial Mail on Sunday reports.

AB

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