FCA Probes Millions Of 'Bad Deal' Investments

The City watchdog is to scrutinise millions of finance products sold to consumers over three decades, because of fears they are shackled by unfair terms and conditions.

It is estimated around 30 million policies, including pensions, endowments, life insurance and investment bonds were sold by companies between the 1970s and the end of the century.

The Financial Conduct Authority (FCA) is expected to announce the decision on Monday, as part of its annual business plan.

The investigation, due to begin in the summer, comes amid suspicion new customers receive better deals while long-term customers receive poor service and higher fees.

Many of the suspect policies penalise consumers if they try to swap to better deals offered by rivals.

The share price for many of the big insurance companies fell on Friday, with early trades in Resolution down 7%, Aviva down 6% and Legal & General trading more than 4% lower.

According to the FCA, some people risk losing half of their investments if they change provider from the so-called zombie funds.

The funds are closed to new customers and many of those who invested are suspected of subsidising other products because of the high charges.

FCA director of supervision Clive Adamson told The Daily Telegraph: "We want to find out how closed-book products are being serviced by insurance companies.

"As we are concerned insurers are allocating an unfair amount of overheads to historic funds.

"As firms cut prices and create new products, there is a danger that customers with older contracts are forgotten.

He added: "We want to ensure they get a fair deal. As part of the review we will collect information to establish whether we need to intervene on exit charges."

The FCA was born out of the now-defunct Financial Services Authority, which was abolished by the current Government in the wake of the financial crisis.

Next week it also takes responsibility for the consumer credit market.

Earlier this week, it imposed a £12.4m fine on Santander UK for failings in its investment advice to customers.

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Business Round-Up And Week Ahead

Sky's Naomi Kerbel offers a round-up of what's coming up in the week's business news.

: Monday March 31

From Monday, energy suppliers are required to publish the price at which they will buy and sell on wholesale markets up to two years in advance and the cost of a first class stamp goes up from  60p to 62p.

:: Tuesday April 1

The Competition and Markets Authority (CMA) takes on its full powers on Tuesday. Regulator, Ofgem has referred the energy market to the CMA for a full investigation into the competitiveness of the market and air passenger duty is due to rise in line with the Retail Price Index.

:: Wednesday April 2

On Wednesday, ASOS will report half year results. The online clothing retailer has faced stiff competition from other web-based companies like the recently-floated Boohoo which also targets people in their 20s.

:: Thursday April 3

It will be the Chancellor's chance to be grilled on Thursday. George Osborne will give evidence at Treasury Committee on this year's Budget. 

:: Friday April  4

On Friday, the U.S. will release its employment figures. It is expected that the unemployment situation will improve as the market shakes off the effects of severe winter weather. 

Missing something? Tweet your business stories to @SkyNKTweets

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'Big Six' Energy Firms May Be Broken Up

The energy watchdog has identified a string of concerns over profits, while confirming a competition inquiry into the household supply market.

Ofgem's decision to refer the sector to the new Competition and Markets Authority (CMA) could lead to the so-called 'big six' firms being broken up.

The regulator charted a quadrupling in energy company profits between 2009 and 2012 - a performance disputed as inaccurate by Centrica, the owner of the country's biggest household supplier, British Gas.

Energy Secrteary Ed Davey welcomed the "tough action"

Ofgem's State of the Market Assessment accused suppliers of "consistently setting higher prices for consumers who have not switched," suggesting households were not engaging with the market because firms were not trusted to be open and transparent.

The review also reinforced concerns about barriers to entry for independent suppliers.

It found that retail profits soared from £233m in 2009 to £1.1bn in 2012 and disputed suggestions that profit margins were falling by pointing to expectations of rising industry margins and retail profits this year.

Ofgem said there was clear evidence of suppliers becoming more efficient in reducing their own costs, although further evidence would be required to determine whether firms have had the opportunity to earn excess profits.

The market investigation, Ofgem said, would conclusively determine whether there should be more separation between the largest companies' supply businesses and generation arms, in a bid to provide more clarity on earnings.

SSE announced its reforms 24 hours ahead of Ofgem's report

One of the 'big six, SSE, confirmed on Wednesday it was to legally separate its supply and generation businesses in a bid to improve transparency as it announced a price freeze until January 2016.

Such a move could be forced on its competitors by the CMA if it decides it would be in the public interest.

While Ofgem found no evidence of collusion on pricing, the review discovered "evidence of possible tacit coordination" in the timing and size of price announcements and new evidence that prices rise faster when costs rise than they reduce when costs fall."

The regulator also confirmed that from June 1 it would substantially increase the level of penalties it imposes on energy firms who break its rules to give "sufficient focus within businesses."

British Gas has denied any suggestion of collusion with competitors

Its chief executive Dermot Nolan said: "Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices.

"The CMA has powers, not available to Ofgem, to address any structural barriers that would undermine competition.

"Now consumers are protected by our simpler, clearer and fairer reforms, we think a market investigation is in their long-term interests."

News of the competition investigation was welcomed by politicians, consumer groups and by some of the 'big six' firms.

Centrica, which owns the biggest supplier British Gas, said its was committed to "an open, transparent and competitive British energy market" and backed moves to restore trust.

But its statement rejected "any suggestion of possible tacit coordination with other market participants" and insisted the market was already competitive.

Chief executive Sam Laidlaw also sounded a note of caution on the possibility that firms could be forced to split or even sell off their power generation businesses.

He said: "We hope that a lengthy review process will not damage confidence in the market, when over £100bn of investment in new infrastructure is needed.

"A prolonged period of uncertainty could damage investment at a time when Britain's energy security is being seriously challenged."

The energy sector says it invested £11.6bn in 2012 - the equivalent to building 20 Olympic stadiums - to secure power  and gas supplies.

E.On's chief executive Tony Cocker said: "A full market investigation by the CMA is the only way to restore full public confidence to the energy sector and depoliticise the whole issue.

"Whilst we have already made a large number of changes such as running our businesses separately, simpler tariffs, simpler bills and further investment in levels of service, a full investigation will once and for all get to the heart of any structural issues that exist or are perceived to exist and help us to all deal with many of the myths and misinformation that surround the energy market."

A seemingly lone voice, critical of the competition inquiry, was the GMB union which represents energy sector workers.

It claimed the investigation was designed to "kick the issue down the road" until after the next election.

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F1 Investors Drive Off With £200m Dividend

By Mark Kleinman, City Editor

Shareholders in Formula One motor racing are in line for a £200m windfall just weeks before Bernie Ecclestone stands trial in a case which could spell the end of his reign at the sport's helm.

Sky News has learnt that the board of Delta Topco, F1's parent, agreed this week to issue a $332m (£199.8m) dividend for last year.

The dividend is technically funded through a redemption of shareholder loan notes, and follows the latest of several financial restructurings undertaken by F1 in recent years.

The biggest recipient will be CVC Capital Partners, the London-based private equity owner of 38% of the sport, which will receive almost £80m.

Among others who will receive windfalls will be the estate of Lehman Brothers, the investment bank whose collapse in 2008 was one of the triggers of the global financial crisis.

Lehman is in line for a payment of approximately $40m (£24m), according to sources close to F1, while Mr Ecclestone, the sport's chief executive, is expected to receive about $17m (£10.2m) by virtue of his 5.3% stake.

F1's other shareholders include the fund managers BlackRock and Waddell & Reed, Norway's sovereign wealth fund and the municipal retirement fund of Texas's teachers.

The dividend plan underlines the continuing financial strength and cash generation demonstrated by F1 despite the broader challenges now confronting one of the world's biggest spectator sports.

Mr Ecclestone's trial on bribery and corruption charges is scheduled to begin in Munich towards the end of next month.

It relates to a $44m (£27m) payment to Gerhard Gribkowsky, a banker who was involved in organising F1's sale to CVC nearly a decade ago.

Mr Gribkowsky has since been jailed and may appear as a witness at Mr Ecclestone's trial.

The F1 chief executive, who has consistently denied any wrongdoing, has conceded that he made part of the relevant payments to Mr Gribkowsky, but said that he had done so because he was concerned that the receipient would make unfounded allegations about his tax affairs to Her Majesty's Revenue and Customs.

He has recently been quoted by British newspapers as saying that he might opt to step down at the end of the year, regardless of the trial's outcome.

The prospective termination of Mr Ecclestone's vice-like leadership is not the only headache facing the sport.

Drivers, executives and media groups complained that engine changes to cars first deployed at the season-opening Australian Grand Prix this month have diminished the sport as a spectacle.

CVC has already made billions of pounds from its original investment in F1, and is waiting to dust off plans to float the company on the Singapore stock exchange.

It has conceded that that idea is unworkable until the legal issues surrounding Mr Ecclestone are resolved.

Sources familiar with the situation said that Delta Topco's board had discussed issuing a substantially higher dividend than the £200m being paid out.

Its decision not to issue additional debt to fund such a move was made with one eye on a revival of the flotation and demonstrated "restraint", one said.

F1's profitability and cash-generative nature has meant that the company's newest investors have already received a series of multimillion pound payouts, suggesting that it would continue to pay attractive dividends if it does eventually pursue a public listing.

Peter Brabeck-Letmathe, the chairman of the Swiss consumer goods giant Nestlé who also chairs F1's parent company, is taking a more hands-on role with the company during the six months that Mr Ecclestone's trial is expected to last.

In a statement issued in January, the board of Delta Topco, F1's parent, said that Mr Ecclestone would step down as a director but remain in day-to-day control of the sport he has run for the best part of four decades:

"Mr Ecclestone has reassured the Board that he is innocent of the charges and intends to vigorously defend the case which will commence in late April 2014," it said.

"After discussion with the Board, Mr Ecclestone has proposed and the Board has agreed that until the case has been concluded, he will step down as a director with immediate effect, thereby relinquishing his board duties and responsibilities until the case has been resolved."

The board said it believed that F1 would be best-served by Mr Ecclestone retaining his management responsibilities but said he would be "subject to increased monitoring and control by the Board".

Approval for significant commercial contracts would become the responsibility of Mr Brabeck-Letmathe and Donald Mackenzie, the CVC founder who is Delta Topco's deputy chairman, the board added.

An F1 spokesman declined to comment on this week's dividend discussions.

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Candy Crush Firm Slumps In Market Debut

The British creator of the popular mobile game Candy Crush Saga has been given the cold shoulder in its public trading debut on Wall Street.

The stock price for King Digital Entertainment plc dropped 15.6% on its first day of trading, ending the session at $19 (£11.46).

The slump gives King a market value of $5.98bn (£3.6bn) - well below the estimate of $7.1bn (£4.2bn) made hours before its debut on the New York Stock Exchange.

The initial public offering (IPO) valued the shares at $22.50 (£13.60), but they opened at $20.50, down almost 9%.

The company raised $500m (£302m) in its IPO to help fund future development and expansion.

King has become hugely profitable based on the success of three games - Candy Crush Saga, Pet Rescue Saga and Farm Heroes Saga - even though it has 180 titles in total.

Candy Crush Saga is one of three key games for King Digital

The company has more than 324 million monthly unique users, and operates a website with 14 languages.

However many investors have been wary of games firms with a limited range of products.

They cite the demise of one-time market leader on Facebook, Zynga, and its Farmville as an example to avoid.

King has offices in Stockholm and London, and games studios in several European cities.

It was founded in London originally as Midasplayer Ltd in 2003 before King Digital was registered in Dublin last July, to assist in inter-country transfer pricing, and "intended to provide us worldwide tax efficiencies".

Midasplayer directors include Swedes Sebastian Knutsson 45, and Lars Markgren, 50, and Italian CEO Riccardo Zacconi, 46.

Its website, through which players can buy 'freemium' game tokens, is domiciled in Malta.

In January, it posted a blog explaining its reasons to buy the EU trademark for the word "candy" and application for the US equivalent.

It said the reason was to protect its intellectual property (IP) and thwart competitors trading on its name.

In its February US IPO listing document, King warned potential investors that unauthorised distribution or piracy, particularly in Asia, may harm its revenue and entail costly litigation to protect its IP.

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Big Six Could Be Broken Up By Watchdog

The big six power companies face being broken up by the competition watchdog, as the energy regulator is expected to refer them for a full-scale review.

When Ofgem publishes its "state of the market" report today, it is likely to announce plans to call in the new Competition and Markets Authority (CMA) for a two-year investigation into the sector.

It would be the first full-scale competition inquiry into the energy market - and would put the UK's biggest suppliers, the big six, under unprecedented scrutiny.

The CMA, which takes over from the Competition Commission next month, could force a major shake-up of the industry, potentially forcing the big six to separate their power-generation and retail businesses.

In an apparent attempt to forestall the probe's findings, SSE has already announced it would legally separate its wholesale arm - which includes energy production and storage - from its retail division, which sells energy to homes and businesses.

Ofgem is likely to hold off from immediately referring them to the CMA, instead suggesting a one-month consultation on the move.

The big six - British Gas, EDF Energy, Eon, Npower, Scottish Power and SSE - have faced sustained criticism over rising bills and soaring profits at a time when household wages are being squeezed.

The firms deny profiteering, saying they have had to increase bills due to rises in wholesale energy prices and green taxes.

Consumer group Which? and the Federation of Small Business were among the latest to push for a CMA inquiry.

They wrote a joint letter earlier this week to the Office of Fair Trading, Ofgem and the CMA saying competition needed to be increased.

On Wednesday, SSE also pledged to freeze household gas and electricity prices until January 2016.

The move, hailed by Prime Minister David Cameron as "hugely welcome", immediately put rivals under pressure to do the same.

"It is our policy that bills should be cut and bills are being cut under this Government," Mr Cameron said.

Six months ago, Labour pledged to force suppliers to freeze prices.

But the policy was dismissed at the time by Mr Cameron as unworkable and "Marxist", while SSE said it would lead to "unsustainable loss-making retail businesses".

Labour leader Ed Miliband on Wednesday told the House of Commons SSE's apparent U-turn "totally demolished" the Prime Minister's arguments on prices.

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Lloyds Bank Shares Worth £4.2bn To Be Sold

Taxpayers are to be left with a 25% stake in Lloyds Banking Group as the Government announces plans to sell £4.2bn in shares.

The taxpayer currently owns 33% of Lloyds but the Treasury is continuing with plans to fully return the lender to the private sector.

Some 5.4bn shares are expected to be sold to city investors on Tuesday night - raising about £4.2bn based on the closing share price of 79.1p.

The shares were bought for 73.6p.

Lloyds was bailed out by the Government in 2008

A Treasury spokesman said: "The Government set out its objectives for its shareholdings in the banks in the Chancellor's annual Mansion House address last June - getting the best value for the taxpayer, maximising support for the economy and restoring private ownership.

"And, as set out in that address, the Government will only conclude a sale if these objectives are met.

"Building a stronger banking system is a core part of the Government's long-term economic plan to deliver greater economic security."

The Government injected roughly £21bn into Lloyds in October 2008 during the financial crisis, giving it a 43% stake.

In April 2010 Lloyds returned to profit for the first time since its bailout.

The Government made a profit of £61m selling off the first tranche of its shares in September last year.

Antonio Horta-Osorio, chief executive of Lloyds

Antonio Horta-Osorio, chief executive of Lloyds, said: "I am pleased that the Government intends to sell a further stake in Lloyds Banking Group and allow taxpayers to get more of their money back.

"I believe this reflects the hard work undertaken over the last three years to make Lloyds a safe and profitable bank that is focused on helping Britain prosper."

Lloyds posted statutory profits of £415m for 2013 against losses of £606m in 2012 - its first bottom-line profit since 2010.

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Facebook In $2bn Oculus Virtual Reality Deal

Facebook has announced it is to splash out $2bn on buying Oculus, a virtual reality company.

The deal includes $400m in cash and some 20 million shares worth about $1.6bn.

A statement released by Facebook chief Mark Zuckerberg said Oculus's technology opened the possibility of "completely new kinds of experiences" in communications, media, entertainment and education. 

"Imagine enjoying a court side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face - just by putting on goggles in your home," the statement said.

Mark Zuckerberg: 'The future is coming and we can build it together'

"One day, we believe this kind of immersive, augmented reality will become a part of daily life for billions of people.

"Virtual reality was once the dream of science fiction. But the internet was also once a dream, and so were computers and smartphones. The future is coming and we have a chance to build it together."

The Oculus Rift headset has brought virtual reality to the sporting world. England Rugby and its partner O2 say the Wear The Rose experience gives fans the chance to train with the national squad.

The deal comes hot on the heels of Facebook's WhatsApp takeover

It lets them participate in drills directed by coach Mike Catt, making them feel as though they have just received their very first England call-up. Coach Mike Catt told Sky News the technology could help players make better decisions on the field.

As part of the Facebook deal, Oculus employees are eligible for a $300m bonus if the company achieves certain targets.

Facebook's purchase of Occulus follows the company's $19bn deal to snap up messaging service WhatsApp in February.

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Co-op Bank Discovers New £400m Shortfall

The struggling Co-operative Bank has discovered a new £400m capital shortfall - in addition to its previous £1.5bn funding gap.

It now expects to report a full-year pre-tax loss next month of some £1.25bn.

The bank added that job cuts hit the 1,000 level last year, or 14% of the workforce.

The bank said that in 2013 it was hit with an estimated £400m in legacy payment protection insurance (PPI), interest rate swaps and other consumer credit mis-selling claims.

Last summer the bank, which has promoted itself as ethically-minded, revealed it had discovered a £1.5bn capital hole.

The latest reassessment increases that figure by around a quarter and is expected to be met by funds provided by its bondholders.

Its five-year recovery plan announced in 2013, which included raising funds from its shareholders, is now to be "reset".

Chief executive Niall Booker said: "The proposed capital raise would enable us to reset this starting point and continue with the execution of our original business plan.

"As a result of this continuing review, we are unearthing a range of issues which the new executive team is having to address."

In February, the parent Co-operative Group announced an online poll to get feedback from the public after admitting it had lost its way.

It was hit by the huge capital black hole and a scandal involving the bank's ex-chairman Paul Flowers.

The Co-op Group will release its annual results on April 17 and the bank's figures will be announced on April 8.

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Supermarket And Restaurant Bills Set To Soar

By Poppy Trowbridge, Consumer Affairs Correspondent

Grocery and restaurant bills are set to rise as food inflation hits 3.8% before the end of the year, according to new research.

That figure, from food service specialist Prestige Purchasing, means food costs are rising faster than other prices.

Consumer price inflation is currently 1.9%, below the Bank of England's 2% target.

Raw materials are traded openly on global markets and commodity prices often fluctuate, sometimes quite wildly.

But right now a specific combination of bad weather, political conflict and increased consumption is pushing up the price of everything from orange juice to cocoa and pork.

Commodity experts say competition for our favourite foods is also an issue.

Brian Smith, a raw materials expert at Mintec, said: "The Russians and the Chinese are putting heavy demand into dairy products and milk products.

The crisis in Ukraine is having an effect on wheat prices

"The likelihood of them dropping in price is slim because of that demand."

Wheat prices are vulnerable to the current political uncertainties stemming from the crisis in Ukraine, a key grain producer.

Mr Smith added: "If sanctions stop the Russians from exporting wheat and grains, or if the Russians choose to stop exporting, then wheat prices will inevitably go up."

The cost of fruit has risen more than any other category of food, according to Prestige research.

The price of chocolate has increased by 1%

It is up more than 10%, followed by the price of vegetables and meat, which have risen more than 5% per category.

Even the cost of sugar, jam, chocolate and confectionery is up 1%.

Wine prices have increased by 16% year-on-year.

The average cost of eating out is expected to continue to rise as restaurants pass on the cost of rising food prices to customers.

While more than £19bn will be added to the UK's annual grocery bill by 2018, the equivalent of an additional £850 per family per year, according to figures from retail consultancy Conlumino.

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Auction House Bonhams Eyes Sale Of Its Own

By Mark Kleinman, City Editor, in Dubai

It has secured a record bid for a painting in Russia and struck the most valuable purchase of an Old Master at auction.

Now Bonhams, the British auctioneer, is considering a deal of a different kind.

Sky News has learnt that the company's shareholders are bringing in City advisers to assess whether Bonhams itself should be put up for sale on the back of record profits.

Sources said on Saturday that Greenhill, an investment bank, had recently been appointed to conduct a strategic review, which will involve examining a range of options for bringing new capital into the business.

Bonhams, which has become a well-known name in the global auctioneering sector, specialises in selling fine art, classic cars and antiques.

It is jointly-owned by two businessmen: Robert Brooks, a former motor racing driver who has chaired the British Racing Drivers' Club, and Evert Louwman, a Dutchman.

Mr Brooks has said in the past that he wants to take advantage of Bonhams' strong balance sheet by building the company into a credible rival to Christie's and Sotheby's, the most famous name in the auction world.

It is unclear whether either of the existing shareholders would countenance an outright sale of their stakes.

Greenhill is expected to recommend the recruitment of a new investor, which is likely to attract interest from major private equity firms and sovereign wealth funds.

A stock market flotation is also expected to be considered although Mr Brooks has previously said that such a move was unlikely.

It is unclear exactly how much Bonhams would be valued at although City sources indicated that it would be several hundred million pounds.

Headquartered on New Bond Street in London, the current Bonhams was formed from a merger with Brooks in 2000, and has established a presence in Dubai, Hong Kong and the US.

The company was founded in 1793, and now claims market leadership in a number of areas, including the sale of Alfa Romeo, Aston Martin and Maserati cars for world record prices.

Last year, Bonhams saw profits more than double to £25m as wealthy buyers looked for alternative investment opportunities in a continuing environment of low interest rates.

Key sales in 2013 included a 1954 Mercedes Formula One car driven by the legendary Argentine racer Juan Manuel Fangio, which fetched £19.6m, and the Madonna Laboris, which became the most expensive Russian painting sold at auction when it attracted a £7.9m bid.

"2013 was a year where we saw the Bonhams brand establish itself further on the global stage," Mr Brooks told a newspaper last week.

'We have put significant investment behind growing a brand that can compete effectively in the key auction markets of the world."

A Bonhams spokesman refused to comment.

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Cable Turns Screw Over Royal Mail Chief's Pay

By Mark Kleinman, City Editor

Vince Cable is demanding that the board of Royal Mail limits a pay rise for its chief executive to the same level awarded to the rest of the newly privatised company's workforce.

Sky News can reveal that the Business Secretary has informed directors of the postal operator that a salary increase of more than 3% for Moya Greene could prompt the Government to vote against Royal Mail's remuneration policies.

The warning has set the scene for an explosive row between Mr Cable and the Royal Mail board, some members of which believe Ms Greene is significantly underpaid as the boss of a FTSE-100 company.

Royal Mail reports its annual results towards the end of May, and will hold its annual general meeting during the summer.

Vince Cable wants to limit a pay rise for Moya Greene

As a 30% shareholder in the company, the Government would deliver a serious blow to the credibility of Royal Mail directors if it voted against their pay report.

Mr Cable and officials at the Department of Business, Innovation and Skills have not yet made a decision about how the Government will exercise its vote.

However, with new executive pay rules drawn up by Mr Cable now in place, it would also undermine his status as an advocate of boardroom reforms if he was seen to endorse even tacitly an inflation-busting pay increase for Ms Greene.

Under a deal struck between Royal Mail managers and the Communication Workers' Union earlier this year, workers will receive a 9.1% pay rise over three years, a deal which included 3% increases in 2013 and 2014.

Royal Mail insiders pointed out on Sunday that Ms Greene did not receive a pay rise last year and has not had one since 2010.

"Since that time, frontline staff have had a three-year pay award of 6.9%, plus a £1000 lump sum, and now the further 9.1% rise and a £200 lump sum," said one ally of Ms Greene.

The company's chairman, Donald Brydon, has argued publicly that she deserves a substantial salary hike, saying in January:

"I think it's only fair to pay Moya the right market rate for her job."

"I'm not in the school that says top executive pay is without fault, there are parts of it that are egregious and wrong. But happily we are so far away from that end of it that to try and right-size her a bit I think is a necessary part of making sure we keep her."

Mr Brydon did not quantify the perceived shortfall in the Royal Mail chief's pay, although Ms Greene is paid less in aggregate than her peers at the helm of companies in the FTSE-100. She is also paid substantially less than her predecessor, Adam Crozier.

Ms Greene was paid a base salary of £498,000, with further sums totalling nearly £1m based on her performance and directors' judgements about her success at modernising the company.

Royal Mail has pledged not to give Ms Greene a significant pay rise until after the current financial year ends.

Some of the company's directors are keen to avoid a public row with Mr Cable, believing that the Government is likely to sell its remaining 30% stake within months anyway.

That would make it much easier to hand Ms Greene a big pay rise, with Royal Mail no longer even partly-owned by the state.

However, some board members believe there is a risk that Ms Greene could leave or be poached if her pay is not increased in the short term.

"The directors have a fiduciary duty to do what is right to keep the best possible leadership in place," a source close to the board said.

For Mr Cable, taking a public stand over pay at Royal Mail is also important because of the criticism he has faced since authorising its £3.3bn privatisation last autumn.

He denied that the company had been undervalued by the Government and its advisers, despite an initial surge in Royal Mail's share price.

While the shares have fallen moderately since their post-flotation high, they closed on Friday at 581.5p, valuing Royal Mail at just over £5.8bn.

The National Audit Office is expected to publish its report on the privatisation process in the next fortnight, with insiders saying on Sunday that it was likely to be critical of the valuation settled upon by the Government.

The BIS Select Committee will then publish its own report on the sell-off, although its cross-party membership may mean that severe criticisms are muted.

Under the reforms instigated by Mr Cable, shareholders in public companies will have a binding vote on future pay policies and an advisory vote on the previous year's remuneration report.

With the AGM season about to get underway, companies such as Barclays are anxiously trying to deflect the prospect of a major investor rebellion.

The Business Secretary has in the past praised Ms Greene as "an exceptionally good CEO" although the pair have clashed before over a £250,000 housing allowance paid to the Royal Mail boss, which she later returned.

If the Government did oppose Royal Mail's pay report, it would be vulnerable to accusations of hypocrisy given that the chief executives of the state-backed Lloyds Banking Group and Royal Bank of Scotland are each eligible for far higher pay deals than Ms Greene.

Such a move could also leave some Royal Mail directors feeling that their positions were untenable because they were not able to act in the interests of all shareholders by securing the services of the company's chief executive.

Royal Mail and a spokeswoman for Mr Cable both declined to comment.

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Leahy Firm Leads Race For £1bn Dubai Group

By Mark Kleinman, City Editor, in Dubai

The private equity firm which employs Sir Terry Leahy, the former boss of Tesco, is leading the race to buy a German industrial group which has key operations in northern England.

Sky News understands that Clayton Dubilier & Rice (CD&R) is heading a field of four remaining bidders for Mauser, a German-based industrial packaging group owned by the ruler of Dubai.

Mauser, which makes drums for transporting medical waste and other hazardous materials, operates two UK facilities, at Batley in West Yorkshire and Littleborough in Lancashire.

The auction of Mauser, which is owned by Dubai International Capital (DIC), was narrowed in the last few days to CD&R, Ardian Partners, Pamplona Capital and Platinum Equity, according to insiders.

Blackstone did not table a formal offer for Mauser, while it is unclear whether Apollo Management, another party which had expressed interest in the group, did so.

The sale of Mauser, which is expected to fetch approximately £1bn, would leave DIC owning only two companies less than a decade after it pursued ambitious plans to become one of the world's leading private equity investors.

DIC is part of Dubai Holding, one of the groups owned by Sheikh Mohammed bin Rashid al Maktoum.

The Dubai-based group acquired Mauser in mid-2007, just as the first signs of stress in global financial markets were becoming apparent.

Dubai was forced to default on sovereign debt repayments in 2009 amid a slump in asset prices but has since successfully restructured its borrowings.

The emirate is now recovering from the financial crisis, with significant construction work resuming and international banks increasing staffing levels from the post-crisis trough of recent years.

Mauser has itself undergone a financial restructuring, announcing in May last year that it had won support from its lenders, which include HSBC and Royal Bank of Scotland, to amend the terms of its debt facilities.

DIC had contemplated a combined auction of Mauser, its UK-based aerospace group Doncasters and Almatis, a German aluminium manufacturer, but has decided to delay selling the latter two businesses.

Among DIC's other troubled investments was Travelodge, the British hotel operator, which it lost control of after its balance sheet became overstretched.

The auction of Mauser is being handled by Bank of America Merrill Lynch.

Mauser and CD&R, which owns companies such as the discount retailer B&M, declined to comment.

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Auction House Bonhams Eyes Sale Of Its Own

By Mark Kleinman, City Editor, in Dubai

It has secured a record bid for a painting in Russia and struck the most valuable purchase of an Old Master at auction.

Now Bonhams, the British auctioneer, is considering a deal of a different kind.

Sky News has learnt that the company's shareholders are bringing in City advisers to assess whether Bonhams itself should be put up for sale on the back of record profits.

Sources said on Saturday that Greenhill, an investment bank, had recently been appointed to conduct a strategic review, which will involve examining a range of options for bringing new capital into the business.

Bonhams, which has become a well-known name in the global auctioneering sector, specialises in selling fine art, classic cars and antiques.

It is jointly-owned by two businessmen: Robert Brooks, a former motor racing driver who has chaired the British Racing Drivers' Club, and Evert Louwman, a Dutchman.

Mr Brooks has said in the past that he wants to take advantage of Bonhams' strong balance sheet by building the company into a credible rival to Christie's and Sotheby's, the most famous name in the auction world.

It is unclear whether either of the existing shareholders would countenance an outright sale of their stakes.

Greenhill is expected to recommend the recruitment of a new investor, which is likely to attract interest from major private equity firms and sovereign wealth funds.

A stock market flotation is also expected to be considered although Mr Brooks has previously said that such a move was unlikely.

It is unclear exactly how much Bonhams would be valued at although City sources indicated that it would be several hundred million pounds.

Headquartered on New Bond Street in London, the current Bonhams was formed from a merger with Brooks in 2000, and has established a presence in Dubai, Hong Kong and the US.

The company was founded in 1793, and now claims market leadership in a number of areas, including the sale of Alfa Romeo, Aston Martin and Maserati cars for world record prices.

Last year, Bonhams saw profits more than double to £25m as wealthy buyers looked for alternative investment opportunities in a continuing environment of low interest rates.

Key sales in 2013 included a 1954 Mercedes Formula One car driven by the legendary Argentine racer Juan Manuel Fangio, which fetched £19.6m, and the Madonna Laboris, which became the most expensive Russian painting sold at auction when it attracted a £7.9m bid.

"2013 was a year where we saw the Bonhams brand establish itself further on the global stage," Mr Brooks told a newspaper last week.

'We have put significant investment behind growing a brand that can compete effectively in the key auction markets of the world."

A Bonhams spokesman refused to comment.

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