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BUSINESS WITH PERSONALITY ▲ MARKETS TOP FIRMS UNVEIL RAFT BY OLIVER SHAH INVESTORS cheered a string of strong quarterly results from UK companies yesterday. Shell nearly doubled profits OF BUMPER RESULTS to £2.9bn, AstraZeneca pledged increased share buy-backs, BT reported a six per cent rise in earnings, BAE Systems expected revenue growth and UK PLC BOUNCES BACK Trinity Mirror said first-half sales leapt. Despite the good news the FTSE 100 P 7, 9, 11, 13, 14, 17, 18, 19 closed down 5.73 points at 5,313.95. Issue 1,188 Friday 30 July 2010 www.cityam.com FREE Coalition in FSA PAY RULES TO big welfare shake-up ▲ POLITICS HURT THOUSANDS BY DAVID CROW IAIN Duncan Smith, the work and ▲ REGULATION pensions secretary, will today unveil BY OLIVER SHAH plans to scrap all out-of-work benefits and replace them with a single pay- LONDON and Europe will lose out to ment, in what will be billed as the other financial centres if tough rules biggest welfare shake-up in decades. on pay are rushed in, City figures A so-called “universal credit” will warned as the UK watchdog revealed replace the myriad of different bene- plans to curb bonuses yesterday. fits that are currently available, Fears were stoked after the including housing benefit, jobseek- Financial Services Authority (FSA) said ers’ allowance and income support. it would update its remuneration Crucially, the credit will also be code to match harsh measures put available to those working in low forward by the European Union in income jobs, to ensure they don’t lose time for January. Hedge funds, asset out when they move off of benefits managers, building societies, stock- and into employment. brokers and many others will be Duncan Smith is expected to say: caught in the crackdown as the regu- “For many people, taking a job leaves lator widens the scope of its powers them no better off than a life on ben- on pay from 26 key banks to more efits, and this has trapped significant than 2,500 financial companies. parts of our society in inter genera- In a set of proposals designed to tional worklessness and entrenched stop “rewards for failure”, the FSA, poverty. led by Hector Sants, said: “The complexity of the system also • at least 40 per cent of bonuses creates risk and uncertainty for the paid to certain “code” staff will have FSA boss Hector Sants wants to implement the crackdown by 1 January, while BBA chief Angela Knight (inset) urges caution people in society who most need sta- to be deferred over three years; bility. We want to simplify the system • a minimum of 60 per cent will • and employees will be forbidden by promising to be fair and propor- broader than EU-wide. The worry is to make it clear that work will always have to be deferred when a bonus from using personal hedging strate- tionate in finalising the pay code. It always that if regions are going to dif- pay.” exceeds £500,000; gies or alternative vehicles to get also recognised that “firms currently ferent timetables, the one that does it The proposals will be unveiled in a • half of any deferred portion will around the rules. within the scope of the code have last becomes a magnet for business.” command paper entitled 21st need to be paid in shares or non-cash Calling for an overhaul of risk and expressed concerns about losing their Tom Gosling at Century Welfare. It will outline plans instruments; reward culture at “the very top levels staff to competitors outside the scope PricewaterhouseCoopers said smaller to combine the benefits and tax cred- • guaranteed bonuses of more of management”, the FSA launched a of the code”. firms could be put at a disadvantage: its systems; combine out-of-work and than one year will be banned apart consultation ending 8 October. It But industry insiders said the FSA “There is a danger of a two-tier system in-work benefits into a single system; from in “exceptional circumstances”; aims to firm up the policy by and EU’s timetables were too short. emerging, between large and small and introduce a series of supplemen- • large financial groups will have November and bring in the changes Angela Knight of the British Bankers’ banks, the individuals within them tary payments for the most needy, to set up remuneration committees by 1 January. Association said: “The issue that con- and also between EU and non-EU such as the disabled. to look at risk and incentivisation; The regulator tried to soothe jitters cerns us is the industry is much players.” ALLISTER HEATH: P2 RETIREMENT AGE SCRAPPED: P4 ▼ ▼ ▼ ▼ ▼ Certified Distribution FTSE 100 5,313.95 -5.73 DOW 10,467.16 -30.72 NASDAQ 2,251.69 -12.87 £/$ 1.56 unc £/¤ 1.19 -0.01 ¤/$ 1.30 -0.01 31/05/10 till 04/07/10 is 103,725 FOREX • STOCKS • CFDS • FUTURES • COMMODITIES • FX OPTIONS • BONDS AWARD-WINNING FX – THAT’S JUST PART OF THE PICTURE As a Saxo Bank account holder you can utilize the same technologies and platform that delivers our acclaimed FX service to trade a wide range of instruments across a comprehensive array of global financial markets. For more information visit us at www.saxobank.co.uk or call 020 7151 2100 Our service includes complex derivative products which carry a high degree of risk and are not suitable for every investor. You can lose more than your initial deposit and you should ensure you fully understand all the risks involved. 2 News CITYA.M. 30 JULY 2010 Moody’s profits Flawed logic at heart of bonus rules beat Wall St ed by the pay rules will jump from 27 the crisis – would chastened share- than huge failures in capital adequacy to 2,500, including stockbrokers, asset holders not force firms to make sure and liquidity regulation.” Needless to expectations managers, hedge funds and others. that pay policies were sufficiently say, nobody listened, not even The FSA is playing catch-up: it is imple- long-termist? After all, the bonus rules Turner’s own FSA. menting directives laid down in are meant to protect shareholders There is a big difference between ▲ FINANCIAL SERVICES Brussels. Bonuses are not being against their own staff, in a bizarre arguing that a few systemically impor- capped – but many employees will see form of reverse Marxist logic. Second, tant banks should have their pay regu- MOODY’S posted better-than-expected 40-60 per cent of their compensation if short-termist bonus policies were so lated and saying that all financial second quarter profit as demand for EDITOR’S LETTER deferred over three year periods and important in fuelling the bubble, why institutions should face the same debt ratings picked up. paid out in equity or equity-like instru- is there no robust academic evidence rules, even if they are too small to pose Earnings rose to $121m (£77m) ALLISTER HEATH ments. that demonstrates this? Why are seri- a risk to the economy. This massive from $109.3m yesterday, while rev- It makes sense for pay policy to be ous academics more concerned with extension of the state’s power to regu- enue of $477.8m, down from the first JUST a few years ago, it would have reformed, of course, and for compa- other factors, such as low interest late private contracts is therefore quarter but up six per cent from a been unthinkable that governments nies to align their interests with those rates, faulty capital adequacy or incor- unnecessary, wrong and counter-pro- year earlier. would seek to regulate the way of their staff. Some firms did incen- rect mathematical models? Third, ductive. The new rules will merely The rating agency was cautious employees were paid by private firms. tivise some of their staff – especially how come Lehman, AIG and other guarantee less wealth and prosperity about the outlook for its business, The recession changed all of this: it those with a sales role – to behave in flawed firms actually paid a large pro- for London. Over time, activity will which faces a tough second half as soon became the received wisdom excessively exuberant ways; it is good portion of their bonuses in shares? For migrate to Asia, to the Middle East, to debt issuance slows and costs associ- that large banks deemed “too large to that the largest institutions have some reason, what now passes as best Switzerland and even to the US. The ated with new financial regulation fail” should have their pay policies reg- cracked down on this. Yet to acknowl- practice didn’t save them. rest of the EU doesn’t care; as far as increase. But Moody’s reported a big- ulated by the state to make sure they edge the need for reform does not I’m not the only sceptic: at last Paris and Berlin are concerned, ger jump in revenue than Standard & don’t encourage staff to take large mean accepting that the best way for- September’s Mansion House speech, London deserves to suffer. But the Poor’s. Regulatory changes now risks which could jeopardize the eco- ward is for the government to step in. Lord Turner, the FSA’s chairman, coalition government should have threaten to cut into their businesses. nomic system. Yesterday, the authori- Three points were never answered pointed out that “it is possible to over- stood up for the City; it beggars belief Under new financial reform, ratings ties signalled a further extension of adequately by supporters of regula- state the importance of bonus struc- that it has not done more to protect agencies can be sued if they “reckless- their powers with the FSA’s announce- tion: first, why – given that everybody tures in the origins of the crisis: they London’s competitiveness and jobs.