Financial Market

London listed mining giant Anglo American has today released news that it will be “reviewing all options surrounding the development” of it £202 million platinum mine in Zimbabwe amidst the growing political unrest in the region.

Anglo American mines precious metals, diamonds, base metals, coal and industrial minerals from mines across the world.

The recent decision to invest hundreds of millions of pounds in the Unki platinum mine in central Zimbabwe has however been revoked after it was met with heavy criticism by political opponents of Robert Mugabe who said that proposed operations would only support his regime.

After being intensely scrutinised by the media and pressured from politicians and shareholders, Anglo American has now said that it will review the project, but went on to say it would not abandon the 650 employees at the mine.

Originally Anglo had said of the proposed plans “The responsible development of the Unki mine will create a long-term viable business which will be important to the economic future of Zimbabwe for years to come,”

A company statement now said that “The company is monitoring the situation in Zimbabwe very closely and is reviewing all options surrounding the development of the project.”

Anglo has now been told by the Mugabe regime that if the proposed plans did not go ahead then the Mugabe administration would take control of it.

In addition to the companies review of it operations in Zimbabwe, Anglo American is also to be investigated by the foreign office to ensure that the investment made in the project did not breech imposed sanctions.

Prior to the announcement to review operations in the country, Anglo had bucked the trend of British businesses based in the region that have been closing down operations or suspending them until Mugabe is out of power.

Shares in Anglo American fell 3.2% to £33.14 during afternoon trading, with rival miner Rio Tinto also down 2.9%.

News broke today that the Britain’s biggest bank are preparing themselves for a high court defeat in the test case over overdraft charges.

On Thursday a judgement is expected which will determine whether or not the Office of Fare Trading can rule excessive banks charges as unfair.

If the OFT wins then it is expected to decide that charges imposed by banks on overdrafts are in fact too high and therefore unlawful.

Since the issue came to light in 2006, hundreds of thousands of bank customers have attempted to reclaim banks charges on the ground they were too high and unfair.

Due to the amount of cases that were taken to court both the OFT and the banks agreed to stage a test case that has meant putting on hold tens of thousands of claims.

“A decision in favour of customers would be massively significant. Public confidence in the banking system is at an all-time low,” said Marc Gander of the Consumer Action Group.

An estimate on the BBC website stated that in 2007 around £748m was refunded to nearly 378,000 customers throughout the UK.

It was in July last year that it was agreed that the test case would go ahead after the OFT agreed a deal with Seven banks and the Nationwide building society. Consumer group Which? Has outlined the three possible outcomes of the case.

An outright win for the OFT. The court could rule that all terms and conditions for all the test case banks over the last 6 years can be assessed for fairness.

An outright win for the banks. The court could rule that none of the terms and conditions used by any of the test case banks over the last 6 years can be assessed for fairness.

Something in between. The court might decide that some terms and conditions are subject to fairness assessment, while others are not.

Whatever the outcome Which? Admitted that this case will not decide whether charges for overdrafts are in fact fair or not.

News today has stated that HSBC is offering two year extensions on fixed rate mortgages that were sold by competitors who are reducing the mortgage share holding or raising rates in the UK.

Starting on the 14th April for five week, the offer comes with applicable fees and also states that owners must have equity of 20% of the properties value.

A spokesman from HSBC explained that this unusual eagerness in current financial markets to buy up existing mortgages with rate deals is as a result of its far eastern businesses that are extremely liquid, as HSBC currently has a “surplus of funding”.

The proposed deal will be welcome news to people with mortgages coming off fixed rate deals in current financial markets.

It is estimated that 1.4 millions home loans are to reset this year and will force borrowers to shift to variable rates.

The bank also said that is will extend loans with fixed rates as low as 4.5 per cent.

HSBC also offers a range of current account options including the bank account and bank account plus.

Swiss financial giant USB has reported that its writedowns as a result of the sub-prime mortgage crisis have more than doubled to £18.5 billion, accounting for the biggest writedown by any bank since the global credit crunch hit.

Upon releasing the news the bank also said that current chairman Marcel Ospel would not seek re-appointment.

The writedowns include $19 billion worth of fresh assets which come on top of the $18.4 billion that was wrote off in 2007, as the value of its assets has plummeted.

The Swiss bank has also said it is seeking to raise £7.5 billion in capital which it will do by issuing new shares.

These new losses announced by the bank do however dwarf those declared by US banks Citigroup and Merrill Lynch which have declared write-offs of $21.1 billion and $22 billion respectively.

• UBS: $37.4bn
• Merrill Lynch: $22bn
• Citigroup: $21.1bn
• HSBC: $17.2bn
• Morgan Stanley: $9.4bn
• Deutsche Bank: $7.1bn
• Bank of America: $5.3bn
• Bear Stearns: $3.2bn
• JP Morgan Chase: $3.2bn
• BayernLB $3.2bn
• Barclays: $2.6bn
• IKB: $2.6bn
• Royal Bank of Scotland: $2.6bn
• Credit Suisse: $2bn

USB made the announcement as it said it expected to post a first quarter net loss of $12.1 billion.

Chairman Ospel said “I have always stated that I ultimately take responsibility for the bank’s situation” and went on to say “We have worked very hard and have been able to address the firm’s most pressing problems, thereby laying the foundation for the long-term success of the bank.”

Mr Ospel will be replaced as chairman by the current bank’s main legal adviser Peter Kurer.

The newly nationalised Northern Rock bank today announced that the £24 billion state loan that it was granted in 2007 will be repaid in full by 2010. This comes despite the fact that the bank has warned that it may not break even for three years.

The bank also warned today that it will be primarily loss making in 2008 after a pre-tax loss of £167.6m, and this news came after stating the bank would pay former chief executive Adam Applegarth £785,000 as part of a severance package.

The payout will be split between a £760,000 payment and £25,000 in non-cash benefits which will be paid monthly.

“A lot of shareholders will be very unhappy with the size of Mr Applegarth’s payoff but it looks like legally, the company could not have avoided paying that amount,” - Roger Lawson of the Northern Rock Shareholders Association Group.

Northern Rock fell into trouble in September 2007 with the Bank of England stepping in to prevent the bank from filing for insolvency. As a result the bank lost 65.5 pence a share, around £243.5 million in overall value, compared to an increase of 394.5 pence a share the year before.

Northern Rock had £471.9 in bad loans compared to 81.2 million the previous year, and customer deposits were also down to £11.6 billion on the 31 December 2007 from £30.1 billion on June 30th the same year.

There are plans to sell off over half of the Banks assets and cut a third of the workforce to repay the loan that was issued by the government and return to public ownership. In an effort to accelerate its own mortgage redemptions the bank has ended much of its lending, including personal and commercial loans. It also intends to reduce its mortgage lending to 2.5% of the UK market down from 9.7%.

These measures, coupled with the trimming of staff numbers by about 2,000, roughly a third of the total number, over the next three years, should help the bank to cut costs by 20%.

A report from mortgage lender Halifax has released data the shows stamp duty for first time buyers has risen 82% over the last five years, in line with soaring house prices.

In 2007 the average bill was £1,751 compared with just £960 in 2002.More interestingly nearly all first time buyer in the South West, South East and East London were liable to pay stamp duty, while only 42% of first time buyers in Northern regions had to pay.

In London it is even worse news for first time buyer with the average stamp duty bill increasing by 364% over the last five years to £8,675.

The government has highlighted that as part of plans, half of all first time buyers will pay no stamp duty this year, and the lowest 1% tax band hits houses of value between £125,000 and £250, 000. Houses with a value between £250,000 and £500,000 will have a 3% charge, whilst properties above that bracket incur a 4% charge.

“Stamp duty has again become an issue for first-time buyers because the stamp duty thresholds have not kept pace with house price inflation.” – Martin Ellis Halifax chief economist

Mr Ellis went on to acknowledge that the government has raised the 1% threshold in recent years but said the government needed “to raise the stamp duty thresholds to compensate for house price inflation over the past decade”.

There is light at the end of the tunnel however for first time buyers, with the survey showing UK house prices did fall by 0.3% in February.

The UK’s largest commercial broadcaster ITV Plc has announced today that annual profits for 2007 fell by 35% to £188million on the back of lower ad sales.

Net income for the broadcaster dropped to £137 pounds from £219 million the previous year. Overall sales at ITV fell 4.5% to £2.08 billion, however first quarter 2008 sales are predicted to rise 1.9% whilst revenue from the ad market will see an overall decline by 0.7%.

The broadcaster has also seen its shares face increasing pressure over the past twelve months, hitting record lows in January and February. It is thought that the ongoing argument that has left BSkyB’s 17.9% stake in the firm unresolved, has lead to advertisers becoming more cautious and as such having a direct impact on profits.

In December the competition commission recommended that BSkyB sell its stake in ITV which was later upheld in January, however BSKYB is due to challenge the Competition Commission’s decision to force the satellite broadcaster to sell down its stake.

On the back of the profit news ITV has stated that a recovery procedure is already in place and advertising revenues have stabilised.

The broadcaster who airs shows including Coronation Street and X Factor has also increased its combined shares of viewing audiences for the first time since the early 1990’s. Thanks to the addition of digital channels and investment in programming, ITV’s combined share increased to 23.3% from 23.1% in 2006.

`The viewers are finally coming back to ITV. The results and audience share gains counter the `myth that ITV is a business managing decline.” ITV executive chairman Michael Grade

ITV have also made plans to expand web content offering in 2008, as well as cut costs by closing local news rooms and selling the company’s stakes in businesses that aren’t deemed strategic.

It was also announced last week that former head of BBC Peter Fincham was due to join ITV as Director of Television, after ITV executive chairman Michael Grade extended his contract with the company until 2010.

In September 2007 Microsoft lost its appeal against a £343 million fine imposed by the European commission after a long running competition dispute. According to the European court Microsoft had abused it market position and froze out rivals in server software and products such as media player.

After the ruling Microsoft was ordered to ensure its products could operate with other computer systems by sharing information with rival software companies. It was also ordered to provide a version of its Windows operating system that would be available without Microsoft’s Media Player software.

In the latest development in the case the European Commission this week further fined the software giant for not adhering to the sanctions imposed by the original court ruling for its anti-competitive behaviour.

As part of the development Microsoft must now pay a record £680.9 million because of its failure to comply with the 2004 ruling. The fine for Microsoft comes on top the 2004 and 2006 fines of 280m and 497m euros that were issued respectively.

“Microsoft was the first company in 50 years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision,” - Competition Commissioner Neelie Kroes

It was only last week that the Microsoft announced to open up some of its leading software, agreeing to publish several APIs for Vista and Office 2007 and provide free access to them, helping non-Microsoft developers interact with Microsoft products.

“Open access to this documentation will ensure that third-party developers can connect to Microsoft s high-volume products just as Microsoft s other products do” – Microsoft

In addition to this Microsoft will free up the protocols around its client and server software, amounting to 30,000 pages of documentation. With this announcement Microsoft has also pledged not to sue open-source non commercial versions of those protocols.

Microsoft isn’t however out of the woods just yet, and with two similar anti-trust cases recently launched against it regarding similar issues more fines could well be on there way.

The first of these cases examines whether Microsoft is abusing its dominance of the PC market to secure market share of the internet, the second will investigate Microsoft’s continued incompatibility with rival products.

On the back of the Commodities outlook for 2008 article at the end of January Financial Market predicted “mergers in (base metal) industry related firms could be the trend of 2008 with rising costs, labour shortages and generation of cashflow fostering the perfect conditions for mergers.”

It seems this has been demonstrated two weeks into February with mining firm Rio Tinto being unveiled as a potential hostile takeover target for rival BHP Billiton.

With £3.8billion profit for 2007, a 1% growth on 2006 profits, Rio Tinto has certainly benefited from surging commodity prices, leaving it in a good potion to fend off the hostile bid.

With demand for raw metals such as copper and coal from nations such as China driving consolidation in the sector, Anglio-Australian giant Rio Tinto rejected a £78.8billion takeover offer from its rival.

With commodity prices remaining high and production reaching record levels Rio’s chairman Paul Skinner said BHP Billiton needed to raise its offer “considerably” before the firm would enter talks.

“For us to become persuaded by the arguments for the combination we would need to see an offer for our shareholders that offers higher value than we could achieve ourselves” - Paul Skinner

BHP Billion’s bid offered 3.4 shares for each Rio Tinto share, already an increase from the unofficial 3 to 1 offer in December 2007, however BHP Billiton has warned it will not sweeten its offer.

With the news this week that Virgin are the front runners in the bid to take over troubled bank Northern Rock, Financial Market looks at how the group will have to alter its tabled bid in order to cement any proposed deal.

The government has told the Virgin Group, spear headed by Richard Branson, that if it is to take over the Northern Rock the terms of its existing deal will have to be improved. The current terms are said to be more geared towards new investors than the long term standing of the mortgage specialist..

With the news that the Virgin consortiums terms are not to the liking of the government, the management-led bid to salvage the bank could still fall through. Nationalisation of the bank is still very much on the table without a better deal for taxpayers according to the treasury.

The government has stated that in return for its risk in helping the troubled bank out it wants increased exposure to any upside.

Northern Rock still owes the Bank of England £24 billion. If a successful take over offer is not made, an alternative course of action that has also been proposed involves the splitting of Northern Rocks debt into government guaranteed bonds and selling them off to investors.

Investors were further concerned when shares in Northern Rock fell as much as 8% upon news that the rescue packages tabled were not meeting government expectations, but this is a far cry from the disappointment of the zero return investors are expected to get should the bank be taken into public ownership.

Northern Rocks biggest single share holder SRM Global has also increased their stake in the company to 11.5%. As an opponent to the take over bid by Virgin, SRM would see Virgin take a majority shareholding in Northern Rock should the take over proposal be successful.