The $300m Black Eye
*** Marconi dusts down its 'For Sale' sign
*** Retail sales fall by the sharpest rate in 13 years
*** Steelmakers profit in first quarter...Spitzer knocks Marsh & cLennan...interest rates hiked again...and more.. -------------------
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
- Job cuts? A 'For Sale' sign? Not things that generally contribute to a rise in a company's share price. But they certainly did the trick for telecommunications supplier Marconi yesterday.
- Marconi, which lost nearly half its value last week after BT said it had overlooked the group for its £10bn network upgrade, traded 7% up to close as a top FTSE gainer. Yet according to the group, it would have to slash a number of jobs in order to reduce costs. Mind you, that's something Marconi employees know a lot about.
- The UK company has already reduced its workforce from 56,000 to 10,000 in the past four years. Moreover, Marconi may have to dust off its 'For Sale' sign - a sign typed up four years ago when the group dipped into £4bn worth of debt. Back then, the firm was saved when creditors forgave the debt in return for 99.5% of its equity. The shares traded at 281p yesterday.
- So with Marconi trading up, and only five sectors falling into the red yesterday, indices across the board leapt up. The FTSE 100 added 1.2%, or 59 points, to close at 4,861. The FTSE All Share index also added 1.2%.
- And surprisingly, the FTSE 250 traded 0.9% up, closing at 6,787, despite the dismal results from the retail sector. Just last week, the index fell 4% on jitters regarding weak retail figures. According to the Confederation of British Industry, retail sales plunged by their sharpest rate since July 1992 - at a time when Britain was emerging from a recession and interest rates were at 10%.
- The CBI said that according to 46% of retailers, sales volumes had declined in April, in comparison to the 32% who said the same in March. Sales at chemists and furniture stores were hit the hardest. The reason for our inability to plunder our wallets? The slowing housing market, the CBI said, as well as lower disposable incomes.
- At the same time, the index of overall manufacturing performance, published by the Chartered Institute of Purchasing and Supply, fell for the first time in two years: from 51.6 in April, to 49.5 last month. Notably, 50 marks the separation between growth and contraction. ------------------- Back in the UK stockmarket, Friends Provident closed as the top FTSE gainer, as the life insurer said its sales had hiked 41% in the first quarter. According to the group, life and pension product sales came to £130m - with most of the business coming from its new acquisition, Luxembourg-based Lombard. The group's share price traded 4% up at 167p.
- Struggling retailer Kingfisher also added 3%, on reports that private equity group Permira was considering bidding for the home improvement retailer's B&Q unit. Its share price closed at 253p.
- And steelmaker Corus also closed 2.3% in the black, as European rival Arcelor announced that its first quarter profits saw a fourfold rise. According to Arcelor, net profits came to 934m euro as the group benefited from the price surge at the end of 2004.
- Yet it seems Corus investors stopped reading the article at this point, missing Arcelor's concerns regarding the rising input costs. The European group said that the next quarter will reflect the rise in input costs, as iron ore producers have won price hikes of around 70% in recent months. Corus traded at 44p.
- Across the pond, New York Attorney General Eliot Spitzer has left insurance group Marsh & McLennan with a very black eye...worth around $310m. Profits at the American firm plunged 70%, from $446m the previous quarter to $134m in the first three months of the year - thanks largely to Spitzer's investigation into bid rigging by the group.
- Marsh has done away with 5,500 jobs since Spitzer launched his investigation into the group - which led to an $850m settlement, by which Marsh agreed to not accept bonus commissions from favoured insurers. This practice netted around a third of Marsh's revenue last year.
- 'We're optimistic that the worst at Marsh is over,' Marsh CEO Michael Cherkaksy said yesterday. 'The talk about Marsh is no longer about prosecutions... But I think it was a very tough quarter.'
- And also in America, the Federal Reserve hiked interest rates by a quarter percentage point to 3% - the eighth successive rise since the current cycle began last June. This is in line with the Fed's measured approach to interest rates in order to keep inflation under control. But it's not all cut and dried for Alan Greenspan's Fed.
- The problem is this: US data is now looking rather mixed. Figures suggest that consumer spending in the country is rebounding, while the Fed is worried about rising inflation.
- At the same time, however, the America's GDP growth showed a surprise slowdown - falling to annualised 3.1% in the first quarter. That's the lowest growth rate in two years...and is surely more than a fleeting concern for Fed officials.Until tomorrow,
Heather D'AltoMoney Mornin
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.