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Seven days: 2 June 2017

Seven days: 2 June 2017

Management at BT (BT.A) has another challenge to add to its list. The telecoms giant began its triennial review of its defined-benefit pension scheme this week, as it tries to plug a £7.6bn deficit net of tax. Potential measures include giving the pension scheme a prior claim over certain BT assets as an alternative to making further cash payments, management said. The group agreed to pay £1.5bn into the scheme in 2015 and a further £250m in 2016 and 2017, as part of a recovery plan agreed with trustees in 2014. Management said higher cash deficit payments could mean less money to reinvest in the business, to pay out in dividends or to repay debt as it matures. An agreement is expected by mid-2018.


Fred the shred escapes?

Shareholder group settles

Royal Bank of Scotland (RBS) has come a step closer to averting the trial relating to its 2008 rights issue. The RBS Shareholders Action Group - which represents around 27,000 retail and institutional investors - has agreed to accept the banking group's revised 82p-a-share compensation offer. A letter sent to members of the group stated that, while the merits of the case against the bank remained strong, the merits against the individual director defendants were more mixed. The group had been holding out for damages of between 92p and 234p a share. Those members that do not want to accept the offer will need to find funding for the lawsuit to continue.


Allied Irish IPO

Dual listing planned

The Irish government has announced plans to list 25 per cent of shares in Allied Irish Banks (AIB) in Ireland and London. The government's inability to finance the bailout of AIB, the now-defunct Anglo Irish and other smaller lenders ultimately forced the country to seek economic rescue by the EU and International Monetary Fund. However, AIB has made a pre-tax profit during the past three years and substantially reduced its non-performing loans. Analysts have valued the bank at between €12bn and €13bn. The offer price range and prospectus are scheduled for release in mid-June, the department of finance said.


Car finance shunned

US volumes decline

The car market is no longer en vogue with big US banks. Outstanding car loans at commercial banks dropped $1.5bn to $440bn (341.75bn) during the first three months of the year, from $1.6bn during the fourth quarter, according to data from the Federal Deposit Insurance Corporation. This is the first sequential drop in six years. The motor market became popular with lenders during the years following the financial crisis, as the mortgage market was deemed too risky. Government agencies have already warned of rising credit risk within the car market. In the UK, the Financial Conduct Authority has announced plans to review underwriting standards within the motor market.


Alfa rises

Biggest UK tech IPO in two years

The UK's largest IPO of the year so far - Alfa Financial Software (ALFA) - has got off to a good start as a public entity. The shares were trading at around 27 per cent above the offer price of 325p at the time of going to press. However, the company had a small free float and was 10 times oversubscribed, increasing demand for the shares. The company supplies software to banks and companies that provide asset finance to buy or lease cars and other equipment.



Pricey markets

Banking fees too high

The Organisation for Economic Development (OECD) has criticised investment banks for charging high fees for facilitating IPOs. This risks putting companies off raising equity and could dampen investment and economic growth, the organisation said. Underwriting fees account for the biggest chunk of direct costs associated with an IPO, ranging from 7 per cent in the US and 8 per cent in China. Companies are now more likely to hire a consortium of banks to underwrite their IPO rather than just one. However, the OECD found that rather than encourage competition among banks, this has only pushed up costs further.


TfL goes wireless

Telecoms to bid

Transport for London (TfL) plans to invite bids from telecoms companies to provide a mobile phone signal on the underground after the general election. Companies likely to bid for the work include BT, Inmarsat (ISAT), Wireless Infrastructure Group and Arqiva. BT-owned mobile network EE has already been in discussions with TfL over how to implement the 4G emergency services contract in high-risk areas such as the underground.

Chart of the week: Indian GDP is rising

One of the potential effects of India's abolition of 500 and 1,000 rupee notes has become apparent. GDP growth in the country slowed to 6.1 per cent during the first three months of the year (see chart).

That's down from 7 per cent during the previous quarter and the lowest rate of growth since the final quarter of 2014. Some have blamed this on a drop in activities in cash-intensive sectors following de-monetisation.

India has proved popular with foreign investors looking for superior returns, while other emerging market economies such as Brazil have destabilised.


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By Emma Powell,
06 June 2017

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