Banks To Overhaul Gold-Fix Amid Rigging Fears

By Mark Kleinman, City Editor

The banks which set the global price of gold are to open the process to independent scrutiny amid evidence that it has been subject to the same manipulation as other crucial financial benchmarks.

Sky News can exclusively reveal that the 95-year-old gold fixing mechanism is poised to seek an independent chairman and third-party administrator for the first time, under plans to be unveiled by its current operators.

A new code of conduct for participants in the fixing process is also being finalised and is expected to be published shortly.

An announcement about the changes is likely to be made as soon as Wednesday, according to people close to the discussions.

The reforms will represent a crucial step towards protecting a globally-recognised mechanism set in London and used across the world's gold industry to set a reference price for bullion.

They will come during a period of intense scrutiny of financial benchmarks such as Libor and amid a string of scandals which have fines running into billions of pounds.

A quartet of banks - Barclays, HSBC, Canada's Scotiabank and Societe Generale of France - set, or fix, the gold price in twice-daily auctions which establish a level at which the participants will buy and sell the precious metal.

The process is managed by London Gold Market Fixing Ltd, which has been taking advice about the future structure of the gold-fix from Slaughter & May, the law firm, insiders said.

Concerns about manipulation in financial markets led the International Organisation of Securities Commissions (IOSCO), a regulatory body, to set out a series of principles for reform, including a greater emphasis on transaction-based pricing, last July.

Benchmark-setters were given 12 months to demonstrate their compliance with these principles, raising the prospect of announcements from supervisors of other financial indices in the coming days.

LGMFL is expected to say that its proposed reforms will make it broadly aligned to the IOSCO principles.

Approximately $220bn of gold changes hands each day through over-the-counter trades, according to a one-off survey conducted by the LBMA in 2011, with several different gold price benchmarks set in London.

However, the integrity of the gold-fix has, like the Libor interbank borrowing rate and foreign exchange markets, been called into question following allegations that it is susceptible to being rigged.

Critics argue that commodities markets are opaque, do not retain sufficiently detailed historical trading records and are not properly audited, prompting an overhaul of the silver-fix process last week.

The change to the silver-fix will involve CME Group and Thomson Reuters replacing the historical method later this year with an electronic benchmark.

In April, Barclays was fined £26m by the City regulator after one of its traders was found to have sought to manipulate the gold price at the expense of a client, who was reimbursed by the bank.

The banks and FCA declined to comment, while the LBMA could not be reached.

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China GDP Growth Accelerates To 7.5% In Q2

The Chinese economy is showing signs of accelerating again after its slowdown from the double-digit GDP growth of the past decade.

Targeted stimulus measures were being credited by analysts for 2% growth in the second quarter - giving the country a 7.5% increase on an annual basis from the previous quarter's 7.4%.

The government said more than seven million new jobs were created in the first half of the year.

Communist leaders are trying to steer China toward growth based on domestic consumption instead of trade and investment and the unexpectedly sharp slowdown of previous quarters had raised fears of job losses.

Beijing responded with mini-stimulus measures based on higher spending on construction of railways and other public works.

Analysts say Chinese leaders are willing to accept slower growth so long as the economy generates enough new jobs to prevent unrest.

Government spokesman Sheng Laiyun told a news conference: "In the first half of the year, economic growth was stable. Employment was stable".

He added that second-quarter consumer spending rose 12.1% over a year earlier, though that was down 0.3% from the previous quarter, while investment in factories, real estate and other fixed assets rose 17.3%.

In other positive signs, foreign direct investment in China rose 0.2% in June, rebounding from a decline in May.

June bank lending grew faster than expected, suggesting growing business activity.

But despite the latest improvement in GDP growth, China's expansion is expected to cool further over the coming year.

The International Monetary Fund forecasts growth to slow to 7.3% next year and to below 7% in 2016.

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Royal Mail 'Faces French Competition Fine'

Royal Mail has confirmed its French parcels business is under investigation by competition authorities and admitted it may face a hefty fine.

The company said it had been served a notice by the Autorite de la Concurrence in France that it was facing allegations of "breaches of anti-trust laws" by GLS France - an operation it bought in 2000 after purchasing the group's wider European business.

TNT Express confirmed it was also caught up in the probe, which is understood to cover the parcels business across France.

Royal Mail said: "We are currently considering the notice received from the French regulator.

Royal Mail is yet to receive any news on a potential fine

"Given the early stage of this matter, we cannot yet determine the amount or range of potential loss; however, it is possible that it could be material".

Some industry analysts estimated a maximum penalty of up to £160m - equating to 10% of GLS's turnover - if any wrong-doing was uncovered.

Shares in FTSE 100-listed Royal Mail fell 1% in early trading on Wednesday.

While the GLS Group is profitable, the French operation reported a £21m loss for its last financial year.

TNT Express said it had been co-operating with the investigation since it started in 2010 and could also not rule out a "material" fine.

The French regulator said it could not give the names of the companies involved nor details of the alleged practices being investigated.

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Banks Summoned Over 'Doomsday' Stress Tests

By Mark Kleinman, City Editor

Britain's biggest lenders have been summoned to the Bank of England (BoE) as the industry prepares to undergo a searching test of its ability to withstand a sterling and housing market crash.

Sky News has learnt that the eight groups which are being subjected to the new series of annual stress tests have been called in by BoE officials to discuss the exercise in recent days.

The individual meetings with the seven banks and Nationwide, the UK's largest building society, follow the submission of each institution's data under the terms set out by the Prudential Regulation Authority (PRA) in April.

The lenders will have to demonstrate their capacity to cope with a series of economic shocks, including a sharp depreciation in sterling and a build-up of inflationary pressures in the UK; a tightening of monetary policy and a rise in long-term interest rates; a decline in GDP of about 3.5% from its 2013 Q4 levels, and a rise in unemployment to around 12%; and a slump in house prices and commercial real estate prices fall of approximately 35% and 30% respectively.

The BoE has requested that each of the major lenders presents its data to a group of PRA and Bank officials.

It will then scrutinise the submitted information for up to two months, during which it may challenge the banks or request re-submissions, according to insiders.

The stringency of the stress tests has raised concerns among senior bankers that some lenders could be forced to raise billions of pounds of new capital.

However, City analysts have played down that prospect, arguing that the five big listed banks would have to incur total losses of £112bn before slipping below the BoE's minimum capital threshold.

"Much has been achieved in recent years to put the UK banking system on a sounder footing, so that it can support the UK recovery," Mark Carney, the Bank of England Governor, said in April.

"The challenge now is to secure a strong, sustainable and balanced economic expansion. The Bank's annual stress test will help ensure our banks support that expansion by remaining resilient."

In addition to Nationwide, the institutions participating in the stress tests are Barclays, Co-operative Bank, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander UK and Standard Chartered.

The PRA declined to comment.

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Watchdog Warning On Price Comparison Sites

Some price comparison websites are failing to meet regulatory standards, according to the Financial Conduct Authority (FCA).

The City regulator found operators in the general insurance sector, which includes property and vehicle cover, were not meeting consumers' expectations and did not always ensure that people were given appropriate information to help them make informed decisions.

The FCA said it was particularly concerned that consumers' focus on headline price and brand when using such sites could distract from crucial product features, such as policy coverage and terms.

As a result, the websites were increasing the risk that consumers bought products without understanding key features such as level of cover or excess levels.

Clive Adamson, FCA director of supervision, said: "Price comparison websites have increased in popularity among consumers, with an estimated one third of consumers buying their motor insurance policy through them.

"They provide an important service for millions of consumers bringing convenience and simplicity to buying financial products online.

"However, our review found that they were not meeting our requirements in delivering fair and consistent outcomes for consumers. 

"We also found, through our consumer research, that consumers had a number of misconceptions about the services they provided.

"We expect price comparison websites to take on board the findings of the review.

"It is also important for consumers to understand that not all products are the same and the cheapest product may not always be the best for their needs".

The review's survey also found some people mistakenly believed that a price comparison website had provided them with quotes on the best policy for their individual needs and had assessed the suitability of the policy for them. 

The FCA said too that not all comparison sites, that were part of a larger group of an insurer or broker, disclosed this potential conflict of interest, which was against FCA rules.

The watchdog declined to name any firm found to be at any fault.

Hayley Parsons, the chief executive and founder of Gocompare.com, told Sky News it had contributed to the review and supported efforts to improve standards though it had "always strived" to operate in its customers' best interests.

She said: "Gocompare.com fully supports measures to promote best practice in the PCW industry.

"Although we regularly update our services to reflect our customers' evolving needs, we will be reviewing the findings of the FCA's report".

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Ashley U-Turn On 'Big' Sports Direct Bonus

Mike Ashley, the founder of Sports Direct, has announced he will not be eligible for a big bonus after all, despite winning a two-year battle for it with investors.

The billionaire - who owns Newcastle United - confirmed on Wednesday he was withdrawing from the £200m employee incentive plan because of speculation over his share allocation.

The scheme had been put to shareholders four times before getting final approval earlier this month - despite continuing criticism from lobby groups including the Institute of Directors.

The four-year plan - which is due to vest in 2019 - has the potential to grant 25 million shares worth more than £180m to 3,000 employees.

Mr Ashley, who holds a 58% stake in the retailer, has never taken a salary or bonus but netted more than £900m in its 2007 flotation and has raised more cash since through block share sales.

The company had fought a bitter battle with other investors for Mr Ashley to be rewarded in the bonus scheme round after a previous plan recently netted some 2,000 staff shares worth around £68,000.

But Sports Direct chairman Keith Hellawell confirmed his withdrawal in a statement, which read: "Following recent unhelpful speculation surrounding his potential allocation, (Mr Ashley) is determined to ensure that there is the maximum number of shares available for the eligible employees."

The Local Authority Pension Fund Forum was among those who had levelled criticism at the plan, claiming it was inappropriate to establish an incentive plan with a single board member in mind.

Forum chairman Kieran Quinn had said: "This arrangement creates a bias in favour of Mr Ashley as well as the impression that he is creating the scheme for himself."

To achieve the payout in 2019, the firm's earnings will have to hit £480m at the end of the 2016 financial year and rise to £750m by 2019.

In results due this week, Sports Direct is expected to report earnings of around £327.1m.

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One-Time Bitter Rivals Apple And IBM Team Up

One-time bitter rivals Apple and IBM have teamed up to target iPhones and iPads at business users.

Apple's famous 1984 advert depicted itself as an insurgent, targeting the then-dominant IBM.

The fortunes of the two companies changed over the next three decades, with Apple now a leading computing giant.

As a result of the deal, IBM will start selling its business clients Apple's mobile devices pre-installed with the new software.

Apple will provide hardware support for devices through a special AppleCare program designed for big businesses buying Apple gadgets in bulk. It includes benefits like 24/7 assistance.

It appears to signal a move by Apple to sweep up customers from the business world, who are turning away from struggling Blackberry and want an alternative to Microsoft products.

IBM already creates social network, email, and chat software for the iOS platform.

It has also released apps for devices running Google's Android operating system.

Apple chief executive Tim Cook said: "We've come from 30 years ago being competitors to today being incredibly complementary and I think that the people that will really benefit from this are the enterprise customers who can be more productive running their businesses."

Tuesday's move boosted both companies, with Apple shares rising by 1.5% in after-hours trading, and IBM's up 1.8%.

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Time Warner Rejects $80bn Murdoch Merger

Rupert Murdoch's 21st Century Fox has confirmed rival Time Warner has rejected an $80bn (£47bn) offer to combine the two global entertainment giants.

Details of the bid emerged on Wednesday, a month after the offer was turned down.

21st Century Fox, which has a 39% stake in Sky News owner BSkyB, said: "21st Century Fox can confirm that we made a formal proposal to Time Warner last month to combine the two companies.

"The Time Warner Board of Directors declined to pursue our proposal.

"We are not currently in any discussions with Time Warner."

A report in the New York Times, which prompted both companies to acknowledge the talks, cited anonymous sources who suggested 21st Century Fox would have sold Time Warner's CNN news channel as part of a deal.

The move, the paper said, would have been to avoid competition concerns because Fox News competes directly with the news network.

Confirmation of the approach sent Time Warner shares 16% higher on opening while its rival's fell slightly.

In its statement, Time Warner added it had no interest in any further engagement but Sky's business presenter Ian King suggested that would not prevent shareholders urging the two sides to get together.

Time Warner said: "The Time Warner board, after consultation with its financial and legal advisors, determined that it was not in the best interests of Time Warner or its stockholders to accept the proposal or to pursue any discussions with 21st Century Fox.

"The board is confident that continuing to execute its strategic plan will create significantly more value for the company and its stockholders and is superior to any proposal that Twenty-First Century Fox is in a position to offer."

The New York company's holdings include the cable movie channel HBO and Warner Bros studios, which produced the Harry Potter movies.

Its rival has the Twentieth Century Fox film and television studios in its global stable alongside a wealth of TV channels and networks.

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Economy: Weakest Pay Growth For Five Years

The Biggest Five-Year Drop In Wages Since 1864

Updated: 4:28pm UK, Wednesday 16 July 2014

By Ed Conway, Economics Editor

Let's begin at the beginning.

Britain is poorer ... much poorer ... than it was five or six years ago.

If you don't believe me, take a look at gross domestic product - simply, the amount of income generated in the country in a given year.

Divided by the number of people in the UK, this income (or, as economists call it, GDP per capita) is still about 6% lower today than in 2008.

Mull over that for a moment, because in the end that's what almost every domestic economic story comes down to these days: that diminished national income and the question of how it is shared among households.

Today's labour market figures are a vivid illustration of the answer.

In years gone by, British workers tended to insist on keeping their real pay rising. So when there were recessions and the country became poorer, the pain was delivered through job cuts rather than wage cuts.

This time around, a cocktail of factors - including globalisation, the decline of unions and, perhaps, more sensible monetary policy - has persuaded workers to allow their incomes to diminish in exchange for keeping their jobs.

The upshot is that unemployment never rose as high as in previous recessions (peaking at 8.4% in late 2011, compared with peaks of 10.7% in early 1993) despite the fall in national income being even greater.

Today the unemployment rate is down at 6.5% (incidentally the level the Bank of England recently cited as the "equilibrium" rate, which would suggest that it should start raising rates, well, yesterday - but that's another story).

The employment rate has reached 73.1%, equalling the 1974/2005 record for the highest level ever.

Admittedly, this includes many self-employed and part-time workers who would rather be in full-time employment, but it is good news, and a massive improvement, all the same.

But since the fall in national income isn't necessarily reflected in the total number of people in work, it is instead reflected in their wages.

The annual rate of wage inflation excluding bonuses is now down to the lowest level on record, 0.7%, and is comfortably below overall CPI inflation of 1.9%.

Whenever inflation outpaces wages it means families' real earnings are falling (as the increase in their salaries isn't enough to compensate for the erosion of that money's spending power).

According to my calculations, the five-year fall in real wages was greater between 2009 and 2013 (8%) than in any comparable period going all the way back to 1864.

So how long until wages recover?

The problem, some suspect, is that the real wage growth of the past few decades, which tended to average about 2.5% plus inflation, was the exception rather than the rule.

According to some employment economists, the pressures of globalisation might mean that the long-term trend will be closer to 1% or even zero.

It is a worrying thought. Britons have patiently absorbed enormous cuts in their real pay over the past few years - but one presumes that this was on the basis that wages would soon bounce back.

If they don't, I would expect a real backlash against those forces of globalisation (particularly immigration), which have pushed them down.

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Investors Revolt Against Gulf Keystone Boss

By Mark Kleinman, City Editor

Investors in Gulf Keystone Petroleum, the London-listed oil explorer, are plotting a revolt at this week's annual meeting which will rank among the biggest City rebellions so far this year.

Sky News has learnt that some of the company's biggest shareholders, including those which led a campaign to overhaul its board last year, have lodged votes opposing the re-election of Todd Kozel, its founder.

Mr Kozel is standing for re-election as an executive director, with a search under way for his successor as chief executive.

Simon Murray, Gulf Keystone's chairman, wrote to shareholders last month to urge them to support Mr Kozel's re-election, and warned that the company's operations in Kurdistan could be jeopardised if he is removed altogether.

But insiders said that shareholders would deliver a bloody nose to the board in Paris on Thursday, with a possibility that both Mr Kozel and Mark Hanson, a non-executive director, could be ousted.

It will be the latest in a series of major shareholder revolts which have hit major companies such as Barclays, Burberry, Experian and Pearson this year.

A source said leading investors had been told that Mr Hanson would not stand for re-election but that the company had reneged on that promise.

The investors understood to be opposing the re-election of those directors include Capital Research Group and M&G Investments, as well as a number of various Malaysian interests, they added.

Collectively, those shareholders hold more than 20% of Gulf Keystone's stock, with a large number of small investors also unhappy about the company's poor financial performance and lavish pay deals for My Kozel and other executives.

A source said that the votes were "on a knife-edge" and that it would not be clear until Thursday whether the company would be defeated on any of its AGM resolutions.

A big revolt would embarrass Mr Murray.

Although he is not standing for re-election, his recent letter to shareholders put his personal credibility at stake.

"Based on its recent communications with the (Kurdistan) MNR (Minister of Natural Resources), our key stakeholder, and the valuable contribution that Todd can continue to make, the Board views it as essential that Todd remains on the Board as an executive director upon his retirement as CEO," he wrote.

"Given Todd is standing for re-election as a director at the AGM on 17 July, I felt that shareholders should be made aware of the position of the MNR and I would like to reiterate that the Board strongly urges shareholders to vote for Todd's re-election."

Gulf Keystone's shares have been hit by their exposure to the turmoil in Iraq, as well as company-specific issues including a warning that payments for exports would be delayed.

Last month, the company announced that Ewen Ainsworth, its finance director, was stepping down, leaving the board with no permanent executive director.

Last year, the company reached an eleventh-hour agreement with M&G and Capital Research Group to appoint a group of independent directors in order to avert a widespread rebellion at its AGM.

Much of the tension over Mr Kozel stems from his pay packages in recent years, having been awarded £14.4m in 2011 and £8.8m in 2012 despite ongoing losses.

The shares have fallen from a peak of 465p in 2012 to around 91p, with a 12 month fall of 44%. It has a market value of just under £800m.

A Gulf Keystone spokesman declined to comment.

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