Business to Business News

Three credible buyers have shown interest in buying the bankrupt Lehman Brothers’ UK arm in London.

The administrator Tony Lomas, at PricewaterhouseCoopers (PWC) for the Lehman Brothers International (Europe) informed that three parties were interested in buying investment business and equity trading arm, which had been employing 600 people. It covered activities pertaining to mergers, acquisition and corporate finance.

He acknowledged that all the offers were from credible and very different financial institutions and was hopeful of starting negotiations at the earliest.

Lomas added that Barclays which had decided to buy Lehman’s US investment banking operations could be opting for parts of the London activities. He added that other parts of Lehman’s business where buyers showed interest included real estate, broker dealer and asset management arm which totally employed 3,400 people.

Lomas also confirmed that he was securing $100m from Cargill group’s CarVal for paying staff salaries for September. This type of funding is known as “debtor-in-possession funding” or “dip financing”. This enables administrator to keep business intact for a sale.

Many of the employees were helping PWC with administration process particularly related to unwinding of massive trading on London Stock Exchange where Lehman still had billions outstanding.

Christian Meissner is heading Lehman in London following the sudden departure of Jeremy Isaacs few weeks ago.

The placement of Lehman Brother’s UK arm into administration has put thousands of UK’s jobs at risk. The Lehman’s US holding company filed for bankruptcy protection under Chapter 11. According to the partner of administrator PricewaterhouseCooper (PWC), Tony Lomas, Lehman group was managing its funding on global basis and the UK trading operation could not meet its obligations due to drying up of funds.

Lehman Brother employs 5,000 people in the UK.

PWC, which was appointed administrator for Lehman Brothers International (Europe), stated that it was working on business wind up in an orderly manner. Lehman Brothers has suffered sub-prime mortgage losses worth billions of dollars. Its UK collapse and US bankruptcy has made it the biggest casualty of the financial crisis which the global markets have been facing over the past year.

The staff at offices in High Wycombe, Birminghamshire did not know about the impact of collapse on their jobs. No one was told anything about the developments hence everyone was turning up for work as usual. A woman worker said that she was hoping for the best.

According to Angela Knight, chief executive of the British Bankers’ Association, Lehman Brothers was a small investment bank in the UK which did not take retail deposits. She asserted that no UK banks were facing situations similar to the Lehman Brothers.

British companies in the FTSE 350 index are expected to generate more cash surplus in the next 3 years despite the economic slump. According to the KPMG Cash Counter survey, the analysts are estimating a cash surplus of £320bn, 52% higher than the January 2007 forecast. The cash generation of FTSE 100 companies is expected to be more than £278bn by the end of 2010, 61% up on the forecast.

The oil, gas, and mining companies will be the biggest gainers as a result of high commodity prices. KPMG is predicting gas and oil prices to remain strong and may not peak for sometime. But the cash surplus of FTSE 100 companies, other than oil and gas, was up only 1.7% than the forecast.

The survey points out that the surplus cash flow of more UK-focussed FTSE 250 companies is likely to go down by 6.7% to £23.6bn from the forecast of January 2007. KPMG is however considering this forecast as analysts’ over-optimism. KPMG is predicting that companies would hold back surplus cash for tougher economic conditions and may use it for making acquisitions.

David Simpson, a partner in KPMG, is surprised about the findings that corporate cash flow would be so robust despite the gloomy economic scenario. He commented that City estimates seemed to be too high and the impact of credit crunch is not yet full.

HSBC has cautioned that conditions in financial markets are currently at their toughest ‘for several decades’ after suffering a 28 per cent fall in half-year profits.

Europe’s largest bank HSBC saw its profits in the first six months of the new year drop by a whopping $3.9bn to $10.2bn (£5.2bn). Its North American arm incurred a $2.8bn loss. The firm also announced $3.7bn in latest credit write-downs. HSBC has been among the leading banks worst hit by the continuing credit crunch, whose financial toll extends into billions.

The bank has already announced write-downs in the value of its existing assets largely linked to the US housing market slump - of well over $15bn. HSBC shares fell by over 1 per cent immediately after it announced its results. HSBC announced that it would hike its shareholder dividend by 6 per cent. In spite of the steep fall in profits, HSBC stated its performance had been much ‘resilient’ given the present market turbulence.

Market analysts concluded that the £5.2bn half-year profit of HSBC would be higher than that of all the other top British banks combined. This not only reflected the bank’s intrinsic strength in rapidly growing Asian markets but also its much cautious approach to lending.

The Spanish banking giant Santander has announced that it has struck a deal worth £1.3bn to takeover UK’s Alliance & Leicester.  Santander will merge A&L with Abbey, which it had taken over in 2004. The deal which will shake up the UK high street is likely to be closed by October. Analysts do not see any resistance since A&L is reeling under severe credit crunch.

A&L’s shares which fell by more than 80% last year, jumped from 219.5p to 325p overnight after Santander’s announcement. Santander has also announced plan for cost savings of £180m a year by 2011. This may result in major job cuts for A&L’s existing work force of 7,000 employees in the UK. Santander had axed 4,000 jobs after taking over Abbey National for £8bn in 2004.

According to acting chairman Roy Brown of A&L, company had to accept Santander’s offer due to the worsening economic conditions. He adds that the board took acute note of external risks posed by the deteriorating economy and remarked that Santander’s UK operations fit excellently with those of A&L.
Santander revealed its plan of reducing the “combined treasury assets” of Abbey and A&L by £20bn to £30bn in the next two years, resulting in minimum exposure to the mortgage markets.

Speaking on a conference call, David Bennett, A&L chief executive, did not rule out job cuts, or deletion of its brand name from high street. With A&L’s 250 branches in UK, the combined total of Abbey and A&L branches will be 950.

Managers and directors might have never imagined that the time they are wasting in searching files is costing millions to the UK small and medium sized firms everyday. Bad filing is making the dream of paperless office an illusion.

Findings of a survey commissioned by document management firm Invu and conducted by YouGov make a shocking revelation that managers and directors of many SMEs are wasting valuable time trying to locate documents which they might have moved, misfiled or lost.

The estimate of £42.2m loss per day is based on the fact that 80 per cent of managers and directors of 4.5 million SMEs in the UK, waste up to one hour of their time per day, worth £88 on average, in searching files.
The biggest contributor to this loss is paper. The survey points out that a meagre 7 per cent of SMEs use electronic documentation and the rest still rely on paper work.

George Derbyshire, chief executive of the National Federation of Enterprise Agencies describes the research results as very frightening, adding that findings have revealed the grave damaging effect of everyday inefficiency on the small businesses. While acknowledging the importance of prioritisation on daily basis, he emphasizes that managers must spare time for reviewing processes and systems. David Morgan, chief executive at Invu, remarks.,the fact that SMEs managers and directors waste valuable time in file search instead of spending it on developing their business is quite shocking.

Many Conservatives and PM Gordon Brown have been assuring companies of bringing corporation tax further down, but are finding it difficult to sell the idea to the voters at large. The rising corporate profits are making it difficult to convince public why the companies need extra relief. Philip Hammond, Conservative Treasury spokesman, recently commented: “It is quite challenging to argue in the favour of reduction.” Brendan Barber, TUC general secretary, opposed reduction saying that it would only burden the smaller companies and other taxpayers to foot bigger tax bills.

A recent report by CBI taskforce pointed out that large cuts were essential for enhancing competitiveness. It suggested the cost of a cut could be compensated by attracting more investment to Britain. The proposition is easier in case of smaller countries, which can attract enough foreign investment, but would be very difficult for a country as big as UK.

Some commentators believe that higher tax rates would not force migration of companies to overseas countries. Those favouring a rate cut are not sure how it will be financed in the short term. Some believe scrapping deductions for interest costs would finance the rate cuts.

Many businesses and companies who work in the finance sector, for example, mortgage advisors, financial advisors, investment companies and others, constantly have a need to train their staff in the appropriate qualifications.

For the financial advice industry, it is a legal requirement that all staff must have an appropriate qualification, for example, with mortgage advice the main qualification is the CeMAP qualification (Certificate of Mortgage Advice Practice) and for financial advisors it is the CeFA qualification (Certificate of Financial Advice).

Companies have to pay the exam registration fees to the ifs (Institute of Financial Services) and as part of those fees, the delegate receives study manuals. However, the study manuals are notoriously difficult to learn from if you don’t already know the subject inside out and so this is where companies need to make a decision on their training.

One company that is happy to help is Beacon Financial Training, who specialise in financial training. They started a couple of years ago just teaching CeMAP training, however, they later expanded into Equity Release training and Will Writing courses and are now adding CeFA training to their services.

Managing Director, Brendan O’Neill, said:

“We work for several national mortgage companies who find it convenient to outsource their financial training needs to a specialist company. The benefits to the company are that it is more cost-effective than hiring trainers and we have a very high and consistent pass rate.”

Beacon offer CeMAP training in Leeds, Manchester, Birmingham, Liverpool and London and are also the only company to offer CeMAP training in Scotland that is tailored to Scottish Law. Mr O’Neill also commented that more locations are being added all the time and that tailored courses can be added upon request.

Barclays has stated it is planning to raise up to £4.5bn in a share issue for bolstering its balance sheet. The company has sold its shares to new investors like the Qatar Investment Authority as well as existing shareholders (China Development Bank). Barclays stated the fundraising move is aimed at strengthening its capital base.

Following HBOS and the Royal Bank of Scotland, it is the latest British bank, seeking to raise funds to ease the adverse impact of the credit crunch. Barclays shares rose in reaction to the move. The state owned investment arm of the Gulf state, Qatar Investment Authority, will invest close to £1.7bn in Barclays, making it a key new shareholder. A separate Qatari firm Challenger, controlled by Sheikh Hamad Bin Jassim Bin Jabr al-Thani, is set to invest £533m in the business. Sumitomo Mitsui Corporation, a Japanese bank, has also agreed to buy £500m in new shares.

“We will strengthen our capital base through our capital raising and also give ourselves additional resources for pursuing our strategy of growth through earnings diversification,” Barclays chief executive John Varley stated.

Happy days are here again for the UK banking customers after a long time. Their waits for three-day clearing would be cut short. As per the information from APACS, the UK payments association, the high street banks had been testing the ‘faster payment service’ system last week. It went live on 27th May.

The service would speed up one-off payments made over Internet or by phone. The clearing would take place within hours. Customers will be able to make payments all day every day. Regular standing order payments on working days will also be cleared within hours.

Paul Smee, chief executive of APACS, informs that the new system was subjected to testing in live environment. Participating banks made hundreds of penny payments between them successfully.
The ‘faster payment service’ will be made available to the customers gradually. The customers will be posted about the date of commencement.

Campaigns policy manager Pula Houghton was happy to see that the payment transfer black hole, which according to him was one of the mysteries of banking world, is set to disappear at last. He hoped, banks would strive quickly to make the service a reality for everyone. The banks have set limits of £10,000 for internet / phone payments, and £100,000 for standing orders, under the faster payment service. Some banks will operate with lower limits initially.