Business News

BSKYB last night sold the majority of its controversial stake in ITV after a long-running legal battle.

The pay-TV group had been ordered to reduce its shareholding in ITV from 17.9 per cent to 7.5 per cent after rivals complained it was harming competition. Morgan Stanley placed the 10.4 per cent stake, raising around £196m.

Shares in ITV closed down 2.3 per cent at 51p yesterday and Sky’s stake was placed at 48.5p-a-share.

A source close to the sale told City A.M. that no single buyer bought the entire tranche of shares.

And an industry insider said Sky decided not to sell the shares to a single bidder, which could have attracted a premium, in order to prevent one of its rivals launching a takeover bid.

The sale represents a massive loss on Sky’s original £545m outlay, although the firm will post a £119m accounting profit because it has written down the value of the investment over the last two years.

Sky has appealed several times against the ruling that it must sell its shares in ITV. NTL Telewest, which now trades as Virgin Media, was particularly irked by the deal, which it said was a blatant attempt to block its proposed bid for ITV.

Suitors that were thought to be interested in Sky’s stake include Virgin Media and Channel Five owner RTL. But neither party bought shares from Sky yesterday.

The Bank of England needs to extend its £300bn support package to lenders or risk intensifying the drought in credit, according to the Council of Mortgage Lenders. The CML warned the cost of borrowing for individuals could soar if the Bank withdrew its props too soon.

SPAIN’S finance minister flew to London for emergency talks with bondholders yesterday as debt markets grew fearful over the country’s ability to finance itself.

Elena Salgado met with fixed income houses, thought to include M&G and Standard Life, to reiterate the Spanish government’s promise to severely rein in its budget deficit to three per cent of GDP by 2013.
Even as she spoke, the cost of insuring against Madrid’s gilts through credit default swaps soared to a record 172.5 basis points. This means it would cost $172,500 to insure $10m of Spanish government debt against default for five years.

The euro languished at around $1.37 as investors aggressively shorted the currency, spooked by the prospect of a sovereign debt crisis prompted by Greece’s teetering finances. Traders and hedge funds had amassed $7.6bn (£6.7bn) in short positions by the start of February, the largest bet against the euro in its history.

The Spanish government pledged to cut its net borrowing by 34 per cent in 2010 to €76.8bn. Ministers launched a publicity offensive, declaring Spanish bonds were suffering from “contagion” due to the poor performance of Greece’s recent issue and attacking speculators for undermining confidence in the country’s economy.

Public works secretary José Blanco lashed out at the media in a radio interview. He said: “Nothing that is happening in the world, including the editorials of foreign newspapers, is casual or innocent.”

The eurozone’s other straggling members fared just as badly, however. The spread on Portuguese credit default swaps rose to 243 basis points, its widest-ever level, while the price of insuring against Greek default hit 420 basis points.

Analysts warned the region would be sent into a fresh tailspin if Greece fails to fully cover its next bond issue. Athens was likened to Lehman Brothers for its potential to drag the entire system back towards calamity if it were to collapse.

Gary Jenkins, head of fixed income research at Evolution Securities, said: “In terms of issuing gilts, there are only so many times you can go to the well before people look around and say, ‘there’s no price for this’. We are probably an issue away from finding out if that’s the case with Greece.”

Sterling was caught up in the worries, falling to an eight-month low against the dollar as investors fled to safety. The pound picked up slightly to close at $1.564.
Meanwhile, in the US the Dow Jones Industrial Average dropped below the 10,000 mark for the first time in three months to close at 9,908.39, with banks taking damage.

Michael Spencer, Tory party fundraiser and chief executive of interdealer broker ICAP, hit out at criticism of his sale of £45m worth of shares shortly before the firm issued a profits warning. ICAP shares lost 20 per cent on 12 February, four weeks after Spencer cashed in. In a letter, he said: “This was clearly at the beginning of the new business year and there was no indication at that stage of any tail-off in our business.”

HERE’S something to take England manager Fabio Capello’s mind off John Terry’s alleged misdemeanours.

Countries hosting the World Cup enjoy a boost to economic growth and stockmarket performance not experienced by winners, according to Société Générale.

Ahead of this summer’s tournament in South Africa, the French bank has put together a note advising investors on the gains and pitfalls to be had from the contest.

It recommends going long the JSE South Africa index and short the Brazil Bovespa to strike the optimum balance between risk and reward. An alternative pairs trade is long the JSE and short the Argentina Merval, Société Générale said.

Analysts went on to compile a list of 16 consumer-facing stocks which have performed well ahead of the competition in the past. Heineken, Next and Nestlé were among the shares powering the makeshift index to outperform the Dow Jones Stoxx 600 by 13.6 per cent in the period around the five World Cups between 1990 and 2006.

“Few doubt the World Cup’s effect on merchandising deals and television rights,” the note added. “British brewers and advertising agencies usually perform well.”

TOYOTA was last night preparing to recall all Prius hybrid cars sold since the start of the year, as the safety crisis engulfing the Japanese company looked set to cost it $4bn (£2.6bn).

More than 180,000 Toyota vehicles have been recalled in the UK because of problems with sticking accelerator pedals. A recall of the 2010 Prius because of braking problems would add a further 300,000 units to the 8m cars already hauled back globally.

Brand Finance, which analyses the values of global marques, yesterday said the affair would wipe more than 10 per cent off Toyota’s brand value of $27bn. Chief executive Akio Toyoda, the grandson of the company’s founder, publicly apologised for the mess last week but is seen to have handled the saga ineptly.

It is also thought a recall of Toyota’s high-end Lexus HS250h is imminent. Not on sale yet in the UK, it has sold in its thousands in Japan.

HISTORY is repeating itself – and much more quickly than we seem to realise. The consensus view appears to be that Portugal, Italy, Greece and Spain – the PIGS – will by hook or by crook be given a bail-out if they need one, just as Dubai, RBS and AIG eventually were – and that this would be the right thing for the European Union to do. Yet these are dangerous and lazy assumptions that could end up costing investors and financial institutions almost as much as the subprime and CDO crisis of 2007-09.

They imply a childish, “all can have prizes” view of the world, where no investor ever loses out (and taxpayers always carry the can); that the weaker eurozone countries should be allowed to remain profligate (while more sensible countries are punished); and that moral hazard and extreme risk taking should become the new normal. Even more importantly, nobody actually knows whether or not Germany would sign off a bail-out. The belief that it would smacks of the kind of blind complacency last seen when investors thought Lehman Brothers would never be allowed to fail. It was – and everybody was shocked. But grossly mismanaged countries have defaulted on their debts in the past – why would the PIGS by any different?

There are two equally unconvincing answers to this question. The IMF stepped in over Eastern Europe last year, preventing a major contagion. It is unlikely to do so this time: its budget may not be big enough and it would feel that it was treading on the EU’s toes. So what about Brussels itself? The EU is caught between two provisions of its constitution. Article 125 rules out bail-outs in ordinary circumstances: “The union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State”. However, Article 122 provides a loophole: when “a member state is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the council, on a proposal from the commission, may grant, under certain conditions, union financial assistance.” The trouble is that the recession is merely the trigger for this new credit crisis: the underlying reason is longstanding political incompetence and governments that lived beyond their means. We are not talking about a tsunami or earthquake.
Nobody knows which way the courts would go if the EU were to attempt to push ahead with a rescue regardless.

Investors keep misjudging risk. With subprime they thought the US housing market would never suffer price drops, an idiotic error. They also bought the idea that cleverly tranched CDOs could protect them from disaster, equally wrong but more forgivable. In this case they assumed that buying the bonds of a euro member meant that they would somehow be protected, an elementary error which confused monetary policy – controlled by the competent European Central Bank – and fiscal policy – controlled by corrupt and incompetent national governments. Sure, the Maastricht Treaty was full of supposed limits on the public debt but these were toothless and routinely ignored. So yet again investors allowed weak debtors to borrow at lower rates than their true riskiness warranted.

The EU may step in to bail-out bust governments or it may allow them to default. Either way, we will all pay a steep price.