PRESS DIGEST - Financial Times - July 6

Financial Times

BANKS REINVENT SECURITISATION TO CUT CAPITAL COSTS

In the latest sign that financial market innovation is far from dead, investment banks including Barclays Capital (BARC.L) and Goldman Sachs (GS.N) have invented schemes to reduce the capital costs of banks' risky assets. The schemes, which Goldman refers to as "insurance" and which BarCap has dubbed "smart securitisation", use different methods to cut capital allocation costs by between 10 and 50 per cent. The new mechanisms have some similarities to discredited structured products such as collateralised loan obligations, which have been widely blamed for helping to fuel the credit crisis. However, bankers argue that the new methods are much more transparent and less risky than their disgraced predecessors.

MANDELSON WARNS OF THREAT TO SINGLE MARKET

Business Secretary Lord Mandelson has warned that the European Union risks learning the wrong lessons from the financial crisis and may inadvertently threaten the success of both the single market and the City of London. The former EU commissioner believes that some European politicians are using the credit crunch to call for weaker competition rules and a clampdown on the financial services industry. Mandelson said that although he agreed with the temporary loosening of EU competition rules in order to help struggling companies survive the recession, he feared that the changes may become permanent. That would "create a threat to the single market", he claimed.

PRESSURE ON BANK GOVERNOR TO CALL OFF 'SERMONS'

Alistair Darling is to publish a wide-ranging paper on financial regulation on Wednesday in which he is expected to call on Bank of England governor Mervyn King to stop "giving sermons" and start making detailed policy proposals. The Chancellor has not been convinced by King's argument that the Bank needs powerful new tools to deliver financial stability, including the right to intervene to rein in struggling banks. Darling will instead argue that the Bank can make better use of its existing powers, particularly its right to sound the alarm if it notices dangerous imbalances building up in the financial system. The Chancellor will recommend that the Bank delivers explicit policy recommendations when delivering its twice-yearly financial stability report.

GRADUATES FACE STARTING SALARY FREEZE

A study by the Association of Graduate Recruiters has found that graduates' starting salaries will not rise this year, making 2009 the first time in more than three decades that starting wage growth has stalled. The report found that average starting salaries are now 'stuck' at 25,000 pounds, with graduate vacancies also falling by 25 per cent in the past year. The Association warned employers that although vacancies have now become easier to fill, "intense competition is causing erratic graduate behaviour in some cases, with candidates applying for jobs they would not normally have considered or are not passionate about".

QINETIQ CONSORTIUM DENIES 1.3 BILLION POUND BLACK HOLE

Metrix, the Qinetiq-led (QQ.L) consortium behind a planned 12 billion pound training programme for the armed forces, has denied that there is a 1.3 billion pound hole in the scheme's funding. A Ministry of Defence memo which has been leaked to the Conservative Party states: "Currently there is a 1.3 billion pound affordability issue in the programme; the problem is borrowing money at a reasonable rate". However, Metrix said that the affordability issues have since been resolved and that separate negotiations with banks are at an early stage. Both Metrix and the MoD insisted that the ambitious project remains on track and that the final decision on whether to proceed will be taken later this year after parliament resumes sitting.

PETS AT HOME IPO TALKS

Bridgepoint Capital, the private equity group, is considering a public flotation for Pets at Home, the pet shop chain it bought for 230 million pounds in 2005. In recent weeks, Bridgepoint has held talks with numerous advisors, including NM Rothschild, Goldman Sachs and JPMorgan Cazenove, to discuss its plans to dispose of its investment. A public share offer or a private sale is thought to be under consideration. The news will hearten analysts, who expected the moribund initial public offering market to remain closed until the end of the year. Bridgepoint first examined selling the company in 2007, but dropped the plans in 2008, believing that it would be unable to secure a decent valuation for the company in light of the recession.

CANARY WHARF WILL BE CASUALTY OF NOMURA SHIFT TO THE SQUARE MILE

Japanese investment bank Nomura (8604.T) is in exclusive talks to move its UK business, including the units which it recently acquired from Lehman Brothers (LEHMQ.PK), into an office development in the City of London. Chief executive Kenichi Watanabe is keen to rebrand the bank as a traditional City institution, and the move will be seen as a blow to Canary Wharf (CYWHF.PK), where the bank and its ex-Lehman Brothers units are predominantly based. Nomura is thought to have signed a 20-year lease on the new building, which is owned by Oxford Properties, the property arm of an Ontario pension fund. The move will boost the flagging City property market, where rents have fallen by more than a third since their peak in 2007.

SAUDI FUND EYES 700 MILLION POUND UK REAL ESTATE DEAL