'Shop till you drop' families court disaster
Bank warns of Enron-style collapses
Small business: Win grants by playing the system
Court ruling could take the shine off golden shares
European court bars protectionist 'golden share'
'Shop till you drop' families court disaster
In a report on the financial risks facing the country, the
FSA says that 6.1 million families nationwide are already finding it hard to
meet repayments on loans of all kinds.
Carol Sergeant, the managing director of the FSA, said:
“Some consumers don’t seem to be thinking ahead sufficiently prudently when
deciding how much to borrow and how much to save. This could cost them dearly
in the long run.”
She added: “Borrowing by consumers has been growing at an unsustainable
rate and some segments of the population are already having difficulty meeting
their debt commitments.
“There is a risk that when a correction comes, it will be
rapid and disorderly. The results could be lower overall economic growth,
hardship for consumers and increased credit risk for lenders.” The warning from
the FSA comes just a day after the latest figures for lending by
The British Bankers’ Association reported that total lending
to individuals in December rose by £6.2 billion, only slightly lower from a
high of £6.5 billion reached in the previous month.
The FSA’s comments followed those
by Sir Edward George, the Governor of the Bank of England, who on Monday sought
to soothe fears that the country’s consumer boom could end in collapse.
Ms Sergeant said that FSA was not predicting a crash, but the “nirvana” of a gentle adjustment looked unlikely.
She said: “Unfortunately, these things often go too far in
one direction, and have to go quite a long way in the other.” She added that
many people were risking their future by failing to save, and needed to “put a
lot more aside”.
In the wake of recent scandals, the FSA also warned
financial firms against misleading consumers. Ms Sergeant said guilty firms
would face disciplinary action by the FSA. - The Times
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As WorldCom, the US telecoms giant, struggled to fend off bankruptcy in the latest accounting fraud scandal to afflict corporate America, the Bank highlighted the dangers posed by a so-called "credit cliff" facing some companies.
The Bank said that tightly drawn contracts directly linking company payments and liabilities for borrowing to credit ratings - so-called "hard-wiring" - posed the risk of provoking collapses in susceptible firms' viability.
Such contracts mean that heavily indebted companies that suffer a downgrade to credit ratings can then face demands for higher debt repayments or additional collateral under covenants on their corporate bonds and other loans which they are unable to meet.
The Bank said the fall of Enron followed a credit downgrade that triggered early repayment clauses in some Enron bonds, leaving the group facing a $4 billion (£2.7billion) liquidity call from its creditors.
Underlining the dangers in its twice-yearly Financial Stability Review, the Bank cited an analysis by the leading US rating agency, Standard & Poor's, that identified 22 US and European industrial and utility companies that "might be exposed to material liquidity pressures following a downgrade of one full (rating) category or less".
The Bank said the world financial system had held up well in the face of a series of shocks. But it said that the risks posed by the "credit cliff" phenomenon, as well as a wider corporate governance problems, were concentrated in the technology, media and telecoms sectors.
David Clementi, the Bank's Deputy Governor, said: "The international financial system proved remarkably resilient and should benefit from an improvement in the outlook for the world economy.
"But the accounting, transparency and governance issues raised by Enron and some other cases may have clouded market perceptions of corporate prospects as well as highlighting a series of risk management issues for banks."
After US regulators brought fraud charges against WorldCom over its admission of having concealed $3.8 billion of costs, the Bank's report singled out the heavily indebted telecoms industry as a key source of financial market risk.
The markets post-Worldcom were helped yesterday by an upward revision to US economic growth. New figures showed that the US economy expanded by an annualised 6.1 per cent in the first three months of the year, not 5.6 per cent, as first thought. This was the highest growth rate for more than two years. The statistics helped to steady markets, with the FTSE 100 index ending the day up 9.6 points at 4,540.6. In New York, the Dow Jones industrial average closed up 149.81 at
9,269.92. The dollar gained, pushing the euro back below 99 cents.
Sentiment was also bolstered by figures showing that UK consumer confidence held steady in June, with the headline index from Martin Hamblin GfK remaining at plus 6. - The Times
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Small business: Win grants by playing the system
Billions
of pounds are available to help small firms but getting hold of the cash can be
hard work
London
(United Kingdom) 10 June 2002 – Colin Stevens laughs when he recalls the
experience of applying for a grant from the European Social Fund (ESF).
"The whole bureaucratic process seemed to take forever," he says.
"And when the deadline for the start of our project passed, we assumed we
had been turned down.
"Two
months and three weeks later, we got the green light. Then came
another surprise. We were asked if we could spend 75% of the first payment
within three days. That would have taken some doing - it was £180,000."
Stevens, 50,
is deputy chief executive of Quadrant, a Cardiff communications agency that
co-ordinates a project to help young musicians in Wales break into the music
industry.
PYNCI
(Promoting Youth Networks in the Cultural Industries) was awarded £810,000 by
the ESF over two years under a system called "match-funding". It
provided 45% of the cost of the project while the organisers had to come up
with the rest. The ESF is one of the most important sources of grants, with
nearly £1.7 billion available to assist all types of British businesses.
Most grants
are offered by intermediaries such as local-government offices, regional
development agencies or the Department of Trade and Industry's Small Business
Service. Companies can find out what grants are available by visiting the J4B
website (j4b.co.uk) which has details of more than 1,500 grants and loan
schemes for small businesses. It also offers advice on contacting funding
providers.
Stevens says
the success of Welsh bands has encouraged many youngsters in the principality
to think about a career in pop music. "Ten years ago there were very few
new Welsh bands making it big. That changed with the Manic Street Preachers,
and Wales has not looked back since."
Stevens says
the music industry is one of the few areas where Britain can claim to be a
world leader. "It's worth about £2.5 billion a year, with the recording
industry alone generating £415m. "We wanted to
tap into the wealth of music talent in
Stevens
persuaded some senior figures in the music industry to support the project,
including Greg Havers, the award-winning producer who
has worked with Manic Street Preachers, Catatonia and many others. Then he
applied for funding.
Vital
assistance was provided by Catherine Carr, who runs Fundamentals Europe, which
gives advice to Welsh businesses that are applying for government grants.
Stevens says that without Carr, his application would never have gone through.
Carr has
been advising companies for the past 12 years and says that although there is a
lot of European Union money available, getting hold of
it is not easy. "Most grants require a lot of work upfront," she
says. "Vast swathes of European funding are directed at areas, such as
training, that are of little interest to a small business."
Business
Links is one of the more traditional routes to grant funding. It has detailed
information on the types of grants available, and how to apply, on its website
(businesslink.org). Contact with the ESF is made through local-government
offices. Grants are usually awarded in regions that are struggling
economically.
Eligibility
for one of the estimated 1,900 grants available in
"I
think running a project funded by the European Social Fund, for example, is
difficult. People without the technical capacity to do their research beforehand
often don't have the capability to run a scheme successfully," she says.
It is
believed that millions of pounds of grants available to small businesses go
unclaimed each year. Stephen Alambritis of the
Federation of Small Business says companies are reluctant to put resources into
applying for a grant because there is no guarantee of success.
"The
idea of billions of pounds sitting there is very tempting, but it requires hard
work. And don't forget, it's a bit like paying for your own Christmas present
because grants come from taxpayers' money."
Alambritis says
that companies usually have to put some money upfront themselves and are
awarded a grant after the costs are established and verified by the fund's
governing body. "For a small business this can obviously affect cashflow," he says.
None of the
drawbacks bothers Stuart Cain, 36, who runs a small Staffordshire firm called
Project Fire Engineers. He applied for a Smart award, a scheme run by the
Department of Trade and Industry to help small businesses develop new products
and processes.
The company
was founded by Cain's father in 1976 and designed fire sprinkler systems for
department stores, offices and warehouses. When the recession hit in the early
1990s, the company diversified into fire protection product development and was
awarded £27,000 under the Smart scheme. Project Fire Engineers has since
developed three new products, doubled its workforce and boosted sales.
"You
have a better chance of funding if you have a good, sound project with the
prospect of creating jobs," says Cain. "It also helps if you have a
solid track record." The award helped to keep key staff during the
recession and allowed the company to bring new products to market. Cain found
out about the Smart award through his local Business Link, but says he has had
mixed experiences with the service.
"At
first, they were keen to come out and make the initial contact, for which there
was a small fee, but after that there wasn't much
interest."
Source:
Sunday Times
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London
(United Kingdom) 06 June 2002 - Government departments were yesterday mulling over the
implications of a European court ruling that threatens the end of the road for
the golden share.
Golden
shares - the often symbolic stakeholdings which give
governments the right of veto over important corporate actions by privatised
former state monopolies - face oblivion after the European Court of Justice
said that the holdings flouted European Union rules on the free movement of
capital.
The move is
likely to trigger more mergers and takeovers in continental Europe and expose
traditionally protected companies, such as Volkswagen and many French
businesses, to the marketplace. Ownership of VW is limited to 20 per cent by
the state of Lower Saxony, which itself has a 14 per cent holding in the
carmaker. However, in the UK, with a couple of possible exceptions, it is
likely to be business as usual.
The ruling
held out the hope of golden shares only in key areas of national strategy such as
energy and defence. It said that golden shares would be permissible only
"if the objective pursued falls within the ambit of a general or strategic
(national) interest and the measures prescribed are based on precise criteria
which are known in advance, are open to review by the courts and cannot be
attained by less restrictive measures."
The ruling
challenged Portugal's ability to impose a limit on foreign ownership in
Portuguese companies, saying that it was discriminatory. It also declared
unlawful France's veto over foreign bids for Elf Aquitaine, the oil company
that is now part of the TotalFinaElf group.
The
Department of Trade and Industry, which keeps the most golden shares of all
British government departments, ceded its opinion on the European action to the
Treasury, bowing to it as the lead department for golden shares. This is
despite the fact that the DTI is in charge of the "ongoing process of
refining" the function of golden shares.
The
Treasury, which is considering the European court judgment, said it was up to
individual departments to battle for retention of their own golden shares or
not. The Department of Transport vigorously defended its golden shares in the
airport operator BAA and the National Air Traffic System (Nats)
but was less sure of where it stood on its interest in three railway groups.
But amid the
confusion over policy, the chances are that there will be very little
difference in ministerial attitude towards golden shares in the UK. Key
strategic assets such as BAA will be fought over, as they have been for some
time. The European Commission has been attacking Britain's limit on foreign
ownership in BAA, and its veto over any sale of Heathrow, Gatwick or Stansted, for two years. But the majority of the
Government's other holdings in 25 organisations may reasonably be expected to
wither away, existing in name only.
Over the
past 22 years ministers have abandoned golden shares in 30 organisations and
have diluted the restrictions in others where the shares are still retained.
Last month the Government said that a 49.5 per cent cap on foreign ownership in
BAE Systems and Rolls-Royce would be dropped. Rolls-Royce was also relieved of
a requirement that its chairman should be a British national.
At present
the Government has special shares in Rosyth Royal
Dockyard, Devonport Royal Dockyard, Qinetiq, BAES
(Marine) and AWE, which are all held by the Ministry of Defence. The DTI has
shares in BAE Systems, Rolls-Royce, British Energy, UK Nirex,
Consignia (although the postal group is wholly owned
by the state), National Grid and Lattice Group.
The Scottish
Office keeps shares in ScottishPower and Scottish and
Southern Energy. The Northern Ireland Assembly has stakes in Virdidian Group, Phoenix Natural Gas, and Belfast International
Airport.
The
Department of Transport looks after holdings in BAA, Nats,
London & Continental Railways, Eurostar, Intercapital and Regional Rail and Stena
Line. The Treasury has control of Partnerships UK, the Public Private
Partnership initiative, and Troika, the last-resort airline insurance venture.
The Department of International Development has a share in CDC Group, formerly
the Commonwealth Development Corporation.
When Stephen
Byers was Trade and Industry Secretary he said he favoured scrapping all golden
shares because they were anachronistic and the Government was unlikely to
exercise its right of veto except in exceptional circumstances. Indeed it has
stood by during a host of takeovers in the power industry, a sector that once
had golden shares firmly in place.
The last
time a golden share came close to being exercised was six years ago when Ian
Lang, then Trade and Industry Secretary, signalled to Southern Company, the US
group, that it might be invoked if a takeover bid was mounted on National
Power, one of the two big power generators. He said that was because there was
too little competition in the power industry. Since then the generator Powergen's takeover by the German company E.ON has been
unopposed.
Ministers
have even backed recent controversial merger talks between the privatised Dutch
postal group TPG and Consignia. Golden shares were
very much a comfort blanket during the early days of privatisation, a means of
allowing ministers to be seen to have the final control over an operation which
they had previously directed while it was in public ownership. They are usually
worth nothing.
BAA said
yesterday that it saw little reason for its golden share because it did not
view itself as a takeover target. No single investor is allowed to own 15 per
cent or more of BAA to prevent a hostile acquisition.
The European
court ruling stops short of outlawing golden shares altogether, although there
is some speculation that Frits Bolkestein, the EU's Internal Market Commissioner, may consider such a
move.
But the
ruling is almost certain to galvanise efforts to establish a European-wide
takeover code. A previous attempt to create such a code collapsed following a
strong lobbying campaign from German corporate interests. - The Times
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London (United Kingdom) 05 June 2002 – Europe’s highest court yesterday inflicted a blow against attempts by European Union member states to retain control of privatised industries when it outlawed the French Government's so-called "golden share" in TotalFinaElf, the oil conglomerate.
The landmark ruling by the European Court of Justice casts doubt on the legality of similar arrangements across Europe and could exert a big influence on a pending legal case against the British Government over its retention of a golden share in BAA, the airports operator.
The decision may ultimately make cross-border mergers and acquisitions much easier, because it gives a boost to the
European Commission's planned takeover directive. The directive proposes that a bidder acquiring 75 per cent or more of a company should be able to override mechanisms aimed at frustrating a full takeover.
The European court, which also issued judgments on cases involving Portugal and Belgium, ruled that golden shares were a barrier to the "principle of free movement of capital" and could be justified only in cases of legitimate national strategic interest, such as in defence, or of more general interest, provided any restrictions are proportionate.
In the French case the court found against rules dating back to 1993, requiring the French Minister for Economic Affairs to approve in advance any acquisition of shares in Elf-Aquitaine above established limits. This veto was retained after Elf's merger with TotalFina. The court said that although France's objective of guaranteeing supplies of petroleum products in the event of a crisis was legitimate, the measures taken "clearly go beyond what is necessary in order to attain the objective indicated". The court said that it was "unable to accept . . . such a wide discretionary power".
Francis Mer, the French Finance Minister, said the French Government had "no choice" but to comply with the ruling. He said that because Elf was now part of the bigger TotalFina Elf group, it had "the means to take care of its own future''. He added: "As a result, the issue is longer dangerous for us.''
The court also vetoed Portugual's regulations banning foreign companies from buying more than 10 per cent of privatised banking, insurance, energy and transport companies without prior authorisation from the Minister of Finance. It ruled that Portugal's argument that the rule was needed to safeguard its financial interests "can never serve as justification for restrictions on freedom of movement".
However, the court ruled that the Belgian Government's golden shares in Belgium's gas and canal companies were legitimate because the measures prescribed - to protect gas supplies in the event of a crisis - were proportionate and subject to a fair legal process for challenges.
A spokesperson for BAA, in which the Department of Trade and Industry has held a golden share since 1987, said that it would be for the Government to decide whether to defend its right in the European Court. The DTI has previously renounced golden shares in a number of companies, including BT, Cable & Wireless, Powergen and National Power.
Yesterday's rulings may also have a bearing in a forthcoming case involving the Spanish Government's golden share in Telefónica. They could also threaten a German law that gives the State of Lower Saxony effective control of Volkswagen, the car manufacturer, although the European Commission conceded yesterday that it was "not, strictly speaking, a golden share".
Vincent Brophy, an associate in Linklaters & Alliance in Brussels, said: "In all
EU countries, governments will now have to review golden share schemes to make
sure they comply with the provisions of the judgment. In practical terms,
certain companies will be much more vulnerable than they have been in the
past." - The Times.
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