Royal Mail Sale: Thursday Delivery Target

Some of the City's most prominent fund managers are lining up to back the £3bn privatisation of Royal Mail as ministers target Thursday morning to press the button on the historic sell-off.

Sky News understands that Lansdowne Partners and Standard Life Investments are among the City institutions which have provided positive indications of their appetite to invest in the company despite the looming threat of the first national strike by Royal Mail staff since 2009.

The pair is among scores of prospective investors with which the postal operator's executives and advisers have held discussions in recent months as the Government attempted to build enthusiasm for the initial public offering.

Investment bankers involved in the deal say they are surprised at the extent of the positive reaction to their initial soundings with investors, although the actual demand for shares will depend to a large extent on how they are priced.

Ministers are likely to take a final decision on Wednesday evening to press ahead with the privatisation, which will take place through a stock market flotation in London next month. A statement formally known as an Intention To Float announcement is expected at 7am on Thursday.

A spokeswoman for the Department of Business, Innovation and Skills insisted on Monday that no final decision had been taken about the timing of a deal. Other external factors such as the crisis in Syria and an impending announcement about the sale of part of the Government's stake in Lloyds Banking Group could yet alter the Royal Mail timetable, insiders said.

Strikes could be a major obstacle to privatisation plans

However, ministers have made it clear that they will not allow the Royal Mail privatisation to be distracted by the robust stance of trade unions.

Sky News revealed last week that Royal Mail would commit to a generous dividend policy in order to entice investors to back the flotation, with a commitment to a specific shareholder payout for the current financial year, as well as a general intention to distribute up to about 50% of its profits in the form of dividends in subsequent years.

"This will be an income stock for investors despite the continuing decline in the company's core letters business," said one person close to the group.

Royal Mail's board is understood to have backed the dividend pledge in principle and will meet on Wednesday to agree further details relating to the privatisation.

Postal operators in other European markets tend to pay out at least 40% of their earnings in dividends although Royal Mail would be expected to retain a large chunk of its future profits as it continues to invest in the modernisation of the company.

The company's flotation will include an eventual distribution of 10% of Royal Mail shares to 150,000 of its employees and an offer of shares to ordinary retail investors.

Royal Mail declined to comment on Monday.

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Jaguar Land Rover To Create 1,700 New Jobs

Jaguar Land Rover has announced 1,700 new jobs are to be created at its Solihull factory as part of a £1.5bn investment in new technology.

The money will be used to develop an innovative aluminium chassis for future models.

The news was revealed by chief executive Dr Ralf Speth at the Frankfurt Motor Show.

"Today's announcement signals Jaguar Land Rover's ambitions to push the boundaries and redefine premium car ownership," he said.

"At Jaguar Land Rover we place the customer at the heart of everything we do and the introduction of a world class all-new aluminium vehicle architecture means we will be more competitive, flexible and efficient delivering exciting new products for our customers around the world."

JLR's first model to have the new architecture will be a Jaguar sports sedan which is due for launch in 2015.

It will also feature the first engine to be built at a new £500m Engine Manufacturing Centre near Wolverhampton.

Jaguar also unveiled its first ever sports crossover concept vehicle, the C-X17, which will also have the new aluminium technology.

The new jobs at the Solihull site in the Midlands bring the total number announced by JLR over the last three years to almost 11,000.

UK Business Secretary Vince Cable said: "Jaguar Land Rover has been experiencing great success over the last couple of years but this ground-breaking project takes Jaguar onto the next level.

"This all-aluminium architecture project typifies the type of innovative and high value R&D that the UK excels in and Government is supporting through the automotive industrial strategy."

The company, which is owned by Tata Motors, has three advanced manufacturing facilities in the UK - in Solihull and Castle Bromwich in the West Midlands, and Halewood on Merseyside.

JLR's Solihull site has been home to Land Rover since production commenced in 1948 and currently builds the Defender, Discovery, All-New Range Rover and Range Rover Sport.

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TSB Makes Return To The High Street

By Poppy Trowbridge, Business and Economics Correspondent

The Trustee Savings Banks, or TSB, reopens on the high street as a stand-alone banking brand today for the first time since its 1995 merger with Lloyds Bank.

The Lloyds Banking Group must shed hundreds of branches under the revived brand name to meet competition rules set by the European Commission.

TSB will open 631 branches across England, Scotland and Wales with 4.6 million customers transferred from Lloyds in the process, making TSB the seventh largest bank in the UK.

The new bank's mission statement says: "TSB will be different from other banks in that it is purely focused on individuals, families and local businesses in the communities we serve across Britain."

Lloyds chief executive Antonio Horta-Osorio described the business as a "completely clean bank" untainted by the turbulence that has threatened to overwhelm the financial sector in recent years.

It is understood that the new TSB bank may seek to sell shares to the public in 2014 to become fully separate from the Lloyds Group.

Government bailouts of both Royal Bank of Scotland and Lloyds Banking Group, as well as, the merger of Lloyds with HboS led the European Commission to rule that RBS and Lloyds must dispose of a large numbers of their branches to redress any competitive advantage they would have as a result of their increased size.

Kevin Mountford, head of banking at MoneySuperMarket, said: "The creation of TSB, and other new banks such as Tesco Bank, Virgin Money, and Metro Bank help make the banking sector more competitive, which can only be good news for consumers as the big four banks still hold the vast majority of accounts."

He added: "This brand has scale and security that comes with being a big bank.

"I would hope that TSB will differentiate themselves from the Lloyds Banking Group in terms of product innovation, otherwise we may just see another big bank on the high street."

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Osborne: 'UK Economy Is Turning A Corner'

George Osborne will say the UK economy is "turning a corner" and that his austerity programme "is working" in a speech later today.

The Chancellor will argue that a run of strong figures suggests the Government has won the economic argument over his critics who wanted him to change course from his Plan A.

He will hail "tentative signs of a balanced, broad based and sustainable recovery" and warn of the need to make "many billions" more in savings after the next election.

But he will insist that the last few months - which have seen growth forecasts revised upwards amid a number of positive indicators - had "decisively ended" questions about his deficit-reduction strategy.

Addressing an audience of academics, think tanks and businesses in London later, Mr Osborne will say: "The plan is working, but the recovery is still in its early stages, plenty of risks remain, and more years of hard decisions lie ahead.

"Our economy is turning a corner, but we must not take anything for granted.

"This is a hard, difficult road we have been following. But it is the only way to deliver a sustained, lasting improvement in the living standards of the British people."

He will add: "More tough choices will be required after the next election to find many billions of further savings and anyone who thinks those decisions can be ducked is not fit for government."

Labour has dismissed the Chancellor's speech as a "desperate attempt to rewrite history".

"Three wasted years of flatlining under George Osborne have left ordinary families worse off and caused long-term damage to our economy," shadow Treasury minister Chris Leslie said.

"This desperate attempt to rewrite history will not wash when on every test he set himself, this Chancellor's plan A has badly failed - on living standards, growth and the deficit."

Opposition leader Ed Miliband is expected to use his speech to the TUC conference to lambast the Chancellor for being "out of touch with ordinary families" by celebrating while they face the squeeze.

Mr Osborne has been buoyed by revised gross domestic product figures showing the UK economy grew by 0.7% in the second quarter of the year, with predictions it could reach 1% for the third quarter.

The respected OECD think-tank has almost doubled its prediction for UK growth this year to 1.5%.

Rising property prices and a summer retail splurge as well as booming car sales have also contributed to the feel-good factor, with surging manufacturing figures for June also helping fuel the improved mood.

Goods exports excluding oil plunged however by 9.3%, and the overall trade deficit more than doubled from £1.3bn to £3.1bn, with real terms wages also in decline.

The economy remains 3% below its pre-crisis level.

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Osborne Ready To Press Button On Lloyds Sale

By Mark Kleinman, City Editor

George Osborne, the Chancellor, is considering selling part of the Government's stake in Lloyds Banking Group as soon as next week amid rising expectations in the City of a multi-billion pound share placing.

People close to the situation say that the Treasury, Lloyds and UK Financial Investments (UKFI), which manages the taxpayer's stakes in the UK's bailed-out banks, are discussing the prospect of a share sale that could take place within days.

Reports this week that a disposal of part of the Treasury's holding would almost certainly be delayed by concerns over the crisis in Syria were dismissed by Treasury insiders.

They acknowledged, however, that broader market risks, which also include the US Federal Reserve's forthcoming decision about whether to slow the pace of monetary stimulus, remained an "obvious factor in a decision".

"The reality is that a final decision about the timing of a sale hasn't been made yet but selling next week is a definite option," said one.

Sky News understands that:

:: JP Morgan, the investment bank advising UKFI on its privatisation strategy, has told the Treasury agency that a profitable sale for the taxpayer would be possible within days based on its assessment of the appetite for Lloyds shares among major institutional investors.

:: A number of major City shareholders have this week encouraged the Government to initiate a sale following the agreed takeover of Vodafone's stake in Verizon Wireless, which will see tens of billions of pounds returned to UK investors.

:: A share placing is unlikely until later in the week at the earliest as Lloyds' managers focus on the successful spin-off of TSB into a standalone banking network on Monday.

:: Aides to Mr Osborne are determined to realise a return from part of the Lloyds stake before the Conservative Party holds its annual conference in Manchester next month. One said that recent improvements in the economic outlook allied to the imminent privatisation of Royal Mail and a sale of taxpayer-owned bank shares were part of "a narrative" that would bolster perceptions of the Chancellor's stewardship of the economy.

:: Senior Liberal Democrats are seeking assurances over Lloyds' future role in lending to small and medium-sized companies before they endorse any sale of Lloyds shares, according to Coalition sources.

The exact size of an initial Lloyds sale has not been determined, although analysts believe it is likely to account for roughly 10% of the bank's shares, or one-quarter of the Government's stake. That would be worth just over £5bn at today's share price just before the market close of 75.41p.

During the last 12 months, Lloyds shares have more than doubled as investors have begun to price in the bank's likely future profitability and potential shareholder returns.

In meetings with investors following last month's interim results, Antonio Horta-Osorio, Lloyds' chief executive, is understood to have pledged that the bank would seek to pay out up to 70% of its profits in dividends within three years.

Lloyds has been prohibited from paying dividends to ordinary shareholders since its £20bn bailout in 2008, which followed its takeover of the stricken mortgage lender HBOS.

Mr Horta-Osorio told Sky News this week that it was "the right thing" for the Chancellor to begin selling Lloyds shares.

The price of any Government placing of Lloyds shares would be crucial to Mr Osborne's presentation of a sale. The Labour government paid an average market price of 73.6p for the stake, and while an imminent placing may not take place above that level, it would be possible to do so for a price well in excess of the 61p at which the stake is recorded in the national accounts.

The lower figure does not take into account £2.5bn of fees paid by Lloyds for implicit guarantees covering its toxic loans in the wake of the 2008 rescue.

The Treasury, Lloyds and UKFI all declined to comment on Saturday.

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Unemployment Figure Could Be Double, TUC Says

Unemployment could be almost double the headline figure of 2.5 million when groups such as the economically inactive are added, the Trade Union Congress has claimed.

According to the TUC, as well as the 2.5 million official jobless figure, a further 2.26 million people want a job but are not classified as unemployed.

A report published ahead of the TUC Congress which opens in Bournemouth on Sunday said wider forms of unemployment should be given the same level of importance in the UK as in the US.

General secretary Frances O'Grady said: "Unemployment may have started to fall in recent months but we are still in the midst of a job crisis.

"The true scale of unemployment is far bigger than official figures suggest, as nearly five million people say they want work today.

"With a further 1.4 million people only able to find part-time work, despite needing a full-time job to get by, it's clear that our labour market remains far from full healthy.

"We know that the recent fall in unemployment has been driven by short hours, low pay, temporary contracts, and jobs that offer no guarantee of paid work at all.

"These types of jobs cannot form the basis for a secure and sustainable economic recovery."

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US Job Stats Drive Market Stimulus 'Frenzy'

Stock markets endured a rollercoaster after the release of US employment figures - a crucial indicator on when the Federal Reserve will ease its economic stimulus.

US employers added 169,000 jobs in August and much fewer in July than previously thought, according to the official data.

The slowdown in hiring was initially seen as complicating the Federal Reserve's decision this month on whether to start slowing its monthly $85bn of bond purchases to boost the economy.

Fears over the so-called 'tapering' of asset purchases has gripped financial markets for months, reflecting the addiction to cheap credit in the world.

The Dow Jones industrial average rose on opening - alongside the FTSE 100 and other major European markets - but then fell back, closing with little change.

However the yield on the 10-year US Treasury note fell to 2.87% from 2.95% as investor expectations eased about the prospect of rising central bank interest rates.

The UK's 10 year debt yield - the interest rate the country pays to service its debts - also fell back from a two-year high to below 3%.

The US Labor Department said while the unemployment rate dropped to 7.3% in August, the lowest in nearly five years, it fell because more Americans stopped looking for work and were no longer counted as unemployed.

The proportion of Americans working or looking for work fell to its lowest level in 35 years.

July's job gains were just 104,000, the fewest in more than a year and down from the previous estimate of 162,000.

Employers have added an average of 148,000 jobs in the past three months, well below the 12-month average of 184,000.

Market strategist at ETX Capital Ishaq Siddiqi said: "It's unwise to say tapering is off the cards in September but it definitely has given the Fed and the market food for thought."

Meanwhile, US oil prices closed at a two-year high of $110.53 a barrel amid fears of escalating tensions in the Middle East and hope for continued stimulus from the Fed. 

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Royal Mail To Pledge City Dividend Bonanza

By Mark Kleinman, City Editor

Royal Mail will pledge to pay hundreds of millions of pounds in dividends to City shareholders in an attempt to win private sector support for its £3bn privatisation, Sky News has learnt.

The company will make the promise as part of a Government statement announcing its intention to float the centuries-old postal operator on the London Stock Exchange, which is expected to be made towards the end of next week.

Sources close to the planned listing of Royal Mail said on Friday that the company was likely to commit to a specific shareholder payout for the current financial year, as well as a general intention to distribute up to about 50% of its profits in the form of dividends in subsequent years.

A valuation of £2.5bn - £3bn would see employees' stake worth up to £300m

The details are still being finalised and could yet change ahead of an announcement, one insider said.

Royal Mail's board is understood to have backed the dividend pledge in principle and is expected to meet next Wednesday to agree further details relating to the privatisation.

The dividend pledge is designed to reassure major City institutions about the attractiveness of Royal Mail as an investment proposition at a time when the threat of industrial action has again reared its head.

Postal operators in other European markets tend to pay out at least 40% of their earnings in dividends although Royal Mail would be expected to retain a large chunk of its future profits as it continues to invest in the modernisation of the company.

The share giveaway to staff will encompass 10% of Royal Mail's equity

"There will be an explicit and robust statement on the company's dividend policy, as you would expect," said a person close to Royal Mail.

However, the commitment on dividend payouts may also ignite further hostility from unions which have criticised the sell-off plans and accused ministers of transferring Royal Mail's economic value to the private sector while having nationalised its historic pension liabilities.

The Communication Workers Union (CWU) is preparing to hold a vote on national strikes at Royal Mail, saying it believed industrial action was "inevitable" without compromise from the company on issues including pay, jobs, pensions and the impact of any sell-off.

The Communication Workers Union is preparing to vote on national strikes

The union has been lobbying for a ten-year pay and conditions offer that would be underwritten by the Government.

The result of the ballot will be revealed in early October and the first strike could be held on October 10 if there is a vote in favour of industrial action.

A lack of progress settling the row could potentially lead to a dispute spilling into the festive season, Royal Mail's most profitable and crucial trading period.

The conflict has escalated despite a commitment made in July by Vince Cable, the Business Secretary, to hand 150,000 Royal Mail employees free shares in the company likely to be worth roughly £2,000-per-worker.

As a further sweetener, staff will be guaranteed a proportion of the retail element of the initial public offering (IPO).

Strikes could be held in October if employees vote for industrial action

The share giveaway to staff will encompass 10% of Royal Mail's equity, in accordance with the Postal Services Act that paved the way for the sell-off of the company two years ago.

At an overall valuation of between £2.5bn and £3bn, that would value the employees' stake at up to £300m.

Members of the public will also be able to buy shares in Royal Mail through intermediaries, a website and in Post Office branches.

Royal Mail and the Department for Business, Innovation and Skills both declined to comment, although one source said an announcement about the flotation could yet be delayed depending on external factors.

The Government has vowed that the threat of a strike will not deter it from selling shares during the current financial year.

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BoE Holds Interest Rate At Record 0.5% Low

The UK interest rate will remain unchanged in September, the Bank of England has said, but analysts believe signs the economy is improving could see the cost of borrowing rise sooner than previously thought.

Bank of England governor Mark Carney had pledged to leave the interest rate at its current record low level of 0.5% until the unemployment rate falls to 7%, which it expects to happen in 2016.

The forward guidance policy was brought in an attempt to stimulate growth.

But it has so far failed to have the desired effect on the City, with a series of caveats to the announcement last month prompting market expectations to be brought forward rather than pushed back.

A raft of exceptionally strong sector surveys this week has added to fears that rates may rise sooner than the 2016 date suggested by the Bank.

James Knightley, economist at ING Bank, said with the housing market potentially heading for another boom and inflation already well above the 2% target, one or more of the Bank's so-called knockouts could be triggered.

"As such, markets - ourselves included - suspect that the first rate hike is more likely to come in early to mid 2015," he said.

But some experts gave Mr Carney and his forward guidance strategy a vote of confidence.

Alan Clarke, a director at Scotiabank, said: "The Bank is not going to be whipped around by short-term swings in the market - higher market interest rates are probably an irritation, but not a game changer at this point."

"Based on the fact that the vast majority of economists still expect unchanged rates for around two years, forward guidance has been a runaway success."

The Bank also made no change to its recent asset purchase programme under which the Bank has spent £375bn on British government bonds.

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Canadians Swoop On Stake In City Broker Oriel

By Mark Kleinman, City Editor

One of Canada's biggest banks is in talks to buy a stake in Oriel Securities, a leading City broking firm, as the consolidation sweeping across the sector gathers pace.

Sky News understands that Canadian Imperial Bank of Commerce (CIBC) is negotiating the acquisition of a minority shareholding in Oriel, which was founded in 2002 and has long been touted as a potential takeover target.

The size of the stake that CIBC would buy and the price it will pay have not yet been finalised, but a deal could be tied up within a matter of weeks, according to people familiar with the talks.

CIBC's proposal has become the favoured choice of Oriel's chief executive, Simon Bragg, following the termination of separate discussions that he held several months ago about a full merger with Panmure Gordon, another City broker.

Oriel Securities claims to have raised more than £1bn for clients in Q1

Oriel, which has a multi-million pound loan outstanding from HSBC and like other brokers has been hit hard by the weak trading environment since the financial crisis, has nevertheless seen a recovery in its business performance this year, advising on deals such as the flotation of Conviviality Retail, owner of the Bargain Booze off-licence chain.

If a deal with CIBC is completed, it is expected to involve a broader alliance than the arrangement which currently involves the Canadian lender distributing Oriel research in North America.

It would also mark the latest tie-up between a Canadian bank and a City broker, following the takeover of Collins Stewart Hawkpoint by Canaccord last year.

A major round of consolidation has been expected in the small- and mid-cap broking industry for some time, and has accelerated in recent months, with the purchase of Evolution Securities by Investec and Seymour Pierce falling into administration and being carved up earlier this year.

Oriel has had a long-standing relationship with HSBC but is understood to pay a high coupon on its loan from the bank.

It is unclear whether a deal with CIBC would include replacing that debt, but one source involved in the talks said the primary purpose of a transaction was to provide "expansion capital" for the London-based group.

Oriel is also understood to be in discussions about acquiring the broking business which services the junior AIM stock market of Nomura Code, another competitor.

In February, Oriel lost its chief executive when David Knox stepped down amid "strategic differences" with other managers. Mr Bragg, who holds a big chunk of the firm's shares, took over from Mr Knox, who is now understood to be planning to establish a new broker.

Oriel has around 100 employees and boasted in April that it had raised more than £1bn for clients during the first quarter of the year, although it has shed staff during earlier rounds of cost-cutting.

Oriel declined to comment.

:: Picture of CIBC courtesy of Bill Burris

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