Business Round-Up And Week Ahead

Sky's Naomi Kerbel offers a round-up of what's coming up in the week's business news.

:: Monday November 25

Google's Eric Schmidt will be in town on Monday for a conference at Chatham House entitled Power and Commerce in the Internet Age. The technology giant has come under fire in recent months over its tax arrangements.

:: Tuesday November 26

The governor of the Bank of England Mark Carney will give evidence to the Treasury Select Committee on Tuesday on the bank's latest quarterly Inflation Report. 

:: Wednesday November 27

Royal Mail will release its first set of results as Vince Cable is grilled by MPs about the Royal Mail's privatisation on Wednesday. The sharp increase in the share price has fuelled concerns that it was sold too cheaply. 

:: Thursday November 28

On Thursday, Thomas Cook will release its full year results. Chief executive Harriet Green has recently been named Leader of the Year at the National Business Awards.

:: Friday November 29

And on Friday, Sony's new PlayStation 4 games console goes on sale in the UK, The console faces stiff competition from Microsoft's Xbox One console.

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Former Co-op Chairman Released On Police Bail

Chancellor George Osborne has announced plans for an independent inquiry into the Co-operative Bank's near collapse, as its former chairman was released by police.

The review uses new powers under the Financial Services Act and follows calls from Prime Minister David Cameron for an inquiry into the bank's ailing finances and the decision to appoint Paul Flowers as chairman.

It will add to an investigation being considered by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), following the regulators' talks with Bank of England governor Mark Carney on Friday.

Mr Osborne announced the review

The Co-op faces a rescue which will see 50 branches close and investors including US hedge funds take control of 70% of the business.

The Treasury-led inquiry will look into mistakes made in the run-up to the Co-op Bank's woes and the £1.5bn black hole in its finances, dating back to at least 2008.

The Treasury said it will investigate actions of the regulators and government in relation to the issues at the bank.

It will also cover the Co-op's takeover of Britannia Building Society at the height of the banking crisis, as well as appointment procedures in light of the scandal surrounding Mr Flowers.

Since Mr Flowers stepped down in June, questions have been asked about his competence in the role.

The 63-year-old Methodist minister was arrested by West Yorkshire Police on Thursday night in Merseyside.

He has been held in connection with an "an ongoing drug supply investigation", police said.

Mr Flowers has been questioned all day by police, and was released on Friday evening.

Asked how Mr Flowers was feeling, his solicitor Andy Hollas said: "I think a rather ponderous frame of mind - I think anyone in his situation would be."

Mr Hollas added: "He's not necessarily guilty of anything, he's not been charged with anything."

Mr Flowers resigned as Co-op chairman in June

Mr Flowers was suspended by both the church and the Labour Party following newspaper allegations that he bought and used illegal drugs.

The Treasury's inquiry will not start until the outcome of criminal investigations into Mr Flowers, or it is clear proceedings will not be prejudiced.

As with the recent review into Royal Bank of Scotland, the probe will be independently chaired, which is seen as vital by the Treasury Select Committee because the role of the regulators will also come under scrutiny.

The FCA said it "fully agrees" the investigation should be led by an independent person.

The Co-op is already at the centre of a barrage of investigations, with the group being grilled by MPs on the Treasury Select Committee into the bank's failed Project Verde bid for 632 Lloyds Banking Group branches.

Sky News has learned that the former Bank of England governor, Lord King, warned of a "political desire" for the Co-op to buy the branches.

It also emerged earlier that the Co-op is seeking to recover £31,000 paid to Mr Flowers since he quit his £132,000-a-year post in June.

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Samsung Told To Pay Apple $290M In Damages

A US jury awarded Apple Inc about $290m in a damages retrial against Samsung Electronics Co Ltd, restoring a large chunk of a historic verdict the iPhone maker won last year.

After a week-long trial, the jury deliberated for nearly two days before reaching a decision on Thursday in a San Jose, California, federal court.

Apple had requested $379.8m, while Samsung argued that it should have to pay $52.7m.

Apple and Samsung have been fighting in the courts for over two years. Apple was awarded over $1bn last year after it convinced a jury that Samsung copied various iPhone features - like using fingers to pinch and zoom on the screen - along with design touches like the phone's flat, black glass screen.

Apple called its marketing chief Phil Schiller to testify during the trial. Samsung did not call any senior executives, a fact hammered on by Apple attorneys during closing argument.

Juror Barry Goldman-Hall, 60, said the six-woman, two-man jury discussed the disparity.

"We felt like we had way more information from Apple and we were left wondering why we hadn't gotten other information from Samsung," said Goldman-Hall.

The case is likely to drag on as Samsung appeals both verdicts, said Brian Love, a professor at Santa Clara Law in Silicon Valley.

"Litigation between the parties is far from over, and there is no end in sight," Prof Love said.

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Royal Mail Fails To Meet Delivery Targets

Royal Mail has been warned it faces an investigation and possible fines if it does not improve services after missing key performance targets.

The postal regulator Ofcom said the recently-privatised company missed a requirement to deliver 93% of all first class letters on the day after collection, reaching 91.7%.

Ofcom said Royal Mail was also required to meet a target of 91.5% of next-day delivery for first class post in almost all of the UK's geographic postcode areas to provide a good level of service across the UK, and not just in more densely populated areas.

But Royal Mail achieved this level in only 62% of the required postcode areas in the year to March 2013.

Royal Mail met other targets, including a requirement to deliver 98.5% of second class letters within three days of collection.

It either exceeded or narrowly missed targets relating to areas such as special delivery, parcels and delivery to the correct address.

"Ofcom is concerned about Royal Mail's failure to meet certain service targets, and has made clear to the company that it must take all necessary steps to meet these in future," the regulator said.

Its report on the postal sector noted that Royal Mail was now on a firmer financial footing and productivity was gradually improving though competition in delivery from other operators still accounted for less than 1% of UK mail volumes.

Royal Mail said in a statement: "We were disappointed that we didn't meet all of the regulatory quality-of-service targets we were required to last year. This remains a key area of focus for us.

"Royal Mail has the highest service specification of any major European country and we take our service performance very seriously.

"The quality of our service to customers is key to our success."

Ofcom noted that customer satisfaction with Royal Mail was high though only just over half of the consumers surveyed were satisfied with the cost of postage, with 30% dissatisfied.

Business users, who account for around 90% of all mail sent, were also largely happy with Royal Mail's service with just 7% dissatisfied.

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Private Prisons Plan Dropped Amid Serco Probe

Plans to put three South Yorkshire prisons into private hands have been dropped amid an investigation into Serco's contracts with the Government.

Justice Secretary Chris Grayling said "uncertainty" created by the investigation into the firm - the leading bidder to operate Hatfield, Moorland and Lindholme prisons - meant the process was being cancelled.

In a written statement to MPs, Mr Grayling said: "The House will recall that I made an announcement on July 11, 2013, where I outlined that the leading bidder for these prisons was Serco, but that the award of this contract would be delayed as a result of the investigations into Serco's operations. The investigations remain ongoing.

"The impact of the delay and the uncertainty this has created mean that for operational reasons we cannot postpone the outcome of the competition process any further.

The Justice Secretary says the jails will remain in Prison Sevice hands

"I have therefore decided that the competition for these prisons will cease and that all three prisons will be managed by HM Prison Service."

A Serious Fraud Office investigation is looking at allegations that Serco and security giant G4S overcharged the Government for tagging offenders, some of whom were dead or abroad.

Serco has lost a third of its value on the FTSE 100 Index - equal to £1.3bn - since the disclosures about the tagging contracts surfaced in July.

The company's chairman, Alistair Lyons, told the Commons Public Accounts Committee this week that it was"ethically wrong" that Serco had overcharged the Ministry of Justice.

Former Serco boss Chris Hyman resigned in October

Both firms have been barred from winning new government contracts pending a wider review of their operations.

Serco said it understood that the "urgent need for change at these prisons means that the typical six-month period of mobilisation and transition to the private sector would not be in the best operational interest of the prisons".

Acting group chief executive Ed Casey, who took on the role after Christopher Hyman resigned last month, said: "From meetings with the UK Government, it is clear that the operational needs of the prisons will be best served by the necessary changes being implemented without further delay.

"We are also continuing to make good progress across the various audits, reviews and our proposed corporate renewal programme within the timing previously communicated by Government."

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Amazon Eyes Tube Offices For Pick-Up Points

Amazon has refused to comment on reports that it is in talks to convert space in London's Tube ticket offices into pick-up points for its parcels.

The development emerged only hours after Tube bosses confirmed plans for the closure of most ticket offices by 2015 as part of efforts to make greater use of technology on the underground - with the changes resulting in 750 job losses.

The online retailer's apparent interest also follows hot on the heels of a pilot project between Asda and Transport for London which will see online shopping collection points set up in the car parks of six Tube stations.

An Amazon Locker - a self-service collection point for online shopping - is already being trialled at Hammersmith.

The bank of individual lockers is operated through a touch-screen terminal, with an individual customer code needed to unlock the locker holding a person's goods.

As the retail industry puts huge efforts into bolstering their click-and-collect offerings - fits with the Tube's modernisation plans, which will also include a 24-hour train service at weekends on some lines.

Mayor Boris Johnson and London Underground (LU) managing director Mike Brown said on Thursday that their proposals would introduce contactless bank card payments from next year, improved ticket machines and extended wi-fi coverage.

RMT regional organiser John Leach said that the union was "aghast" at the reports of drop-off points inside ticket offices.

He said: "Just under 1,000 front-line uniformed staff that help the public are to go under these plans.

"This is a disaster for the safety and the good running of the Tube."

The union's general secretary Bob Crow said after the announcement that the Tube's modernisation effort risked industrial action.

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Intern Death: Fatigue May Have Triggered Fit

A 21-year-old intern died of an epileptic fit that may have been triggered by fatigue after working "exceptional" hours at a top investment bank, an inquest has heard.

Moritz Erhardt's body was found in a shower at his temporary accommodation after he'd been working through the night several times in the days before.

The German student was a week from completing a coveted placement at Bank of America Merrill Lynch's London offices, and was due to be offered a job at the bank.

An inquest at Poplar Coroner's Court in east London heard that Mr Erhardt was taking medication for epilepsy, but had not told anyone at the bank about his condition.

Mr Erhardt's death sparked calls to overhaul the culture of long hours in the City of London and prompted Bank of America Merrill Lynch to launch a review.

Recording a verdict of natural causes, coroner Mary Hassell told the court: "One of the triggers for epilepsy is exhaustion and it may be that because Moritz had been working so hard his fatigue was a trigger for the seizure that killed him.

The bank has launched a review after Moritz Erhardt's death

"But that's only a possibility and I don't want his family to go away with the thought that it was something that Moritz did that caused his death.

"He was a young man living life to the full and he was clearly enjoying his time in London and, whilst it's possible that fatigue brought about the fatal seizure, it is also possible that it just happened. And it is something that does just happen."

The court head Mr Erhardt never complained about his working hours or feeling unwell, and even on the day before he was found dead, appeared to be fine.

Mr Erhardt's father, Dr Hans-Georg Dieterle, described his son as sporty and "full of life" but said from the start of 2010 he had suffered one to two epileptic fits a year, although these were not stopping him from living a normal life.

Dr Dieterle said although his son did not complain to his parents about his working hours they noticed from the time his emails were sent - sometimes at 5am or 6am - that he had worked through the night.

"He never complained but especially my wife noticed in the last week that he just didn't get enough sleep," Dr Dieterle told the court.

Juergen Schroeder, Mr Erhardt's development officer at Merrill Lynch, described him as "very motivated, very confident", but also "very humble, very down-to-earth".

He said: "Colleagues at the bank thought very highly of him and did enjoy working with him."

Describing him as "very proactive", he said: "He would not just sit still and wait for the work to come to him. He would be going round various teams and introducing himself, especially at the beginning."

He told the inquest it was difficult to know exactly what hours the student was working, and admitted that most interns worked long hours.

He said: "I think interns in general do work long hours and sometimes past midnight.

"I would say it's not only the case at Bank of America Merrill Lynch - it's the case at most banks in London, it's the case in Germany, it's the case in, I think, most parts of the world as well."

Asked by the coroner about how Mr Erhardt coped with his work, he said: "I was not very concerned about Moritz and the way he coped with his work.

"He seems, from the feedback I got, very efficient and very structured, and also relaxed, very relaxed.

"He was not the type of person who would show any signs of stress."

In a statement, a Bank of America Merrill Lynch spokesman said: "Moritz Erhardt's death was a tragedy that affected and saddened everyone in our company and especially those who had the privilege to spend time with him.

"He was an exceptional student and it was our intention to offer Moritz Erhardt a full-time position with us on graduation.

"As we have previously announced, a senior working group has been convened to review the work environment for our junior employees."

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King Warned Of Political Push For Co-op Deal

By Mark Kleinman, City Editor

The Governor of the Bank of England warned one of the bidders for more than 630 Lloyds Banking Group branches that its offer would fail because of "a political desire" to see a rival proposal from the Co-operative Group succeed.

Sky News can reveal that Lord King, who stepped down as Governor in June, told Lord Levene, the chairman of NBNK Investments, that the Co-op's bid had won political favour in Whitehall that would be difficult to overturn.

The disclosure of Lord King's remarks threatens to provide a 'smoking gun' for those who have insisted that there was explicit political interference in the £1.5bn branches auction as ministers sought to promote the mutual ownership model in the banking sector.

George Osborne, the Chancellor, and Lloyds directors including Sir Win Bischoff, its chairman, have consistently denied any attempt by ministers to influence the outcome of the auction.

The intervention of Lord King provides the latest twist after an extraordinary week in which a series of allegations have been made about the private life and professional competence of Paul Flowers, the Co-op Bank's former chairman.

The meeting between the then Sir Mervyn King and Lord Levene is understood to have taken place in July last year, just before Lloyds announced a firm intention to sell the branch network to the Co-op on July 19, 2012.

"He [Lord King] said that there was a political desire to see the Co-op acquire the branches," said a Bank of England insider familiar with the discussion.

News of the meeting, which is said to have been brief and focused on the Lloyds auction, provides the most powerful evidence so far of a belief within the most senior echelons of the City that Coalition ministers had a direct preference for the Co-op to expand by buying the branches.

Lord Levene and the Bank of England both declined to comment on last year's meeting.

It is not clear whether Lord King referred to individual politicians during the meeting with Lord Levene but his remark could nevertheless embarrass Mr Osborne, who publicly enthused about the Co-op Bank's expansion and who announced on Friday the terms of an independent inquiry into the mutual's troubles.

Bank of England insiders said the former Governor had harboured reservations about the Co-op's ability to undertake such a transformational deal although it is unclear whether such doubts were expressed during his conversation with the NBNK chairman or the extent to which they were then raised with banking regulators.

The Treasury said on Friday that the decision about the sale of the branches had been a matter for the boards of the companies and the relevant regulators.

The takeover of the 'Project Verde' network of 631 branches would have trebled the Co-op Bank's size and created a bank with nearly 8 million customers and a balance sheet of more than £30bn.

The Co-op originally won preferred bidder status from Lloyds on December 14, 2011. However, after discussions between the two parties stalled, Lloyds then announced on May 1, 2012 that it was no longer in talks with the Co-op on an exclusive basis and would consider other bids.

NBNK then assembled an improved offer but again lost out to the Co-op in July last year.

The Treasury is reported to have intervened in Brussels to help smooth a path for the Co-op to gain preferential treatment in relation to its capital position, with one aide to Mr Osborne telling the Financial Times this week: "We are totally unashamed in trying to help a British institution [the Co-op] and the British economy."

The decision to sell the Verde branches to the Co-op despite concerns about the mutual's ability to complete the deal has inflamed political tensions this week, with Labour's close links with the Co-operative Bank highlighted by Conservatives.

In turn, senior Labour figures have accused ministers of failing to undertake sufficient due diligence on the Co-op Bank to ensure that it was in a sufficiently sound financial position to take on the Lloyds branches.

The Co-op has now been forced to seek a £1.5bn rescue deal for its banking arm, which is reliant on a £125m capital injection from a group of hedge funds. Investors will vote on the proposed deal during the next two weeks.

NBNK has repeatedly argued both that it offered a better financial deal to Lloyds than the Co-op and greater assurances that it would be able to execute an agreement.

In evidence provided to the Treasury Select Committee earlier this year, the acquisition vehicle also warned Lloyds that it believed the Co-op was in a worse financial position than had been publicly acknowledged and that the mutual would be forced to withdraw.

Senior City sources now believe that one of the motivations for favouring a Co-op deal with Lloyds was that the well-capitalised Verde network would help to ease the mutual's difficulties over IT systems, management inexperience and doubts about the robustness of its capital position.

The Verde branches are now being carved out of Lloyds under the TSB brand, with a stock market flotation expected to take place next year.

Sky News revealed last week that the former boss of RSA Insurance, Andy Haste, is being lined up to chair the new TSB public company.

In an interview with Sky News earlier on Friday, Lord Levene said NBNK had been told by its advisers that a bid by the Co-op was "not viable".

"What I did was… [to] take that report and give it to the chairman of Lloyds Bank who I knew very well and say to him, 'Look…I really think before you press the button on this you ought to read this report for yourself because I think you will see from this that the Co-op is not going to be the answer for you. Subsequently the Chairman… denied that he had ever seen that piece of paper."

Lloyds declined to comment.

A series of regulatory probes now awaits the Co-op and some of its former directors, with the FCA and PRA saying separately on Friday that they were already undertaking work to establish whether they should launch formal enforcement investigations.

A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.

In a statement on Friday afternoon, it said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".

The Treasury's inquiry will not begin until after any PRA and FCA enforcement action has been concluded.

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Energy Bills: Ofgem Targets Power Operators

The energy regulator has moved to help cut household energy bills in future by rejecting business plans from five of the six companies that own and operate Britain's local electricity network.

The five firms, whose activities form below 20% of an annual electricity bill, were found by Ofgem to not offer enough in terms of value to consumers in their plans. 

The watchdog found that Western Power Distribution (WPD), which covers South Wales, the Midlands and the South West of England, was the only company that achieved eligibility to have its price controls agreed early.

It did not name the five firms which it said fell foul of its efforts to lower costs.

There are 14 regional distributors operating in the UK.

WPD's business plans, which cover the period from 1 April 2015 – 31 March 2023, included around £7bn of total expenditure, of which around £3bn was for investment to upgrade and maintain WPD's network. 

Ofgem said the agreement meant the distribution element of the electricity bill would be reduced for its customers by an average of 11.6% or around £11.30 in 2012/13 prices.

Hannah Nixon, Ofgem's senior partner for distribution, said: "We understand that energy costs are a big concern for consumers and we set a high target for demonstrating value for money.

"We are pleased that nearly all companies have pledged to cut bills, but we feel that most companies can go further in cutting their costs and expect to see further improvements when they resubmit their plans in March.

Regulation of the distribution sector operates differently to that which sells direct to households and manages billing.

Customers have to rely on regulation from Ofgem to limit charges from distributors as they operate on a regional monopoly basis rather than in competition with each other, as the main energy companies do.

Those firms - dominated by the so-called 'big six' - have been under fire over inflation-busting rises to bills announced ahead of winter.

Those that have raised prices have pledged to cut the increases back should the Government confirm it will take the cost of green levies out of bills and shift them to general taxation.

Labour has demanded greater intervention to cap bills - accusing ministers of standing idle amid a cost of living crisis for families as price rises continue to outpace wage increases.

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Comparison Websites Investigated By Watchdog

Fourteen price comparison websites are to be investigated following concerns that some of them could be misleading customers.

The Financial Conduct Authority (FCA) is looking into potential conflicts of interest, examining whether any sites are promoting deals they want them to buy and focusing too much on price rather than customer service.

They will also look into cases where comparison sites are owned by insurers themselves.

FCA spokesman David Cross said: "If insurers happen to own a particular price comparison website there is a concern that could create a conflict of interest whereby their products are promoted over others.

"When someone searches for something; are they necessarily getting the best deal for them, or are they just getting the deal the website want to give them?"

The review will question company heads about whether the customer or profit is really at the heart of a business model and examine the "expectation gap" for customers who may  money on insurance premiums only to face problems when claiming on their policy.

The FCA is looking at whether customers are getting the best deal

Mr Cross said: "Price isn't necessarily the best marker of an insurance deal. When you come to claim, if you find out that you can't, then obviously that money's been spent for nothing."

The FCA stressed that comparison sites "perform a valuable service for millions of people" and said almost half of all internet users had used them to research motor insurance, with four in five going on to buy it through the same site.

MoneySupermarket said it was an independent company with no ties to insurance groups.

The company said: "MoneySupermarket gives customers the information they need to save money on the products that suit them. If a policy doesn't offer breakdown insurance, for example, we'll show the extra cost of that."

The company added it received no commissions for its services, simply receiving a flat fee every time a customer buys a policy, and that these fees are "completely independent" of policy price.

Richard Lloyd, executive director of consumer group Which?, said: "We welcome the Financial Conduct Authority's review into price comparison sites.

"We found they claim to do all of the work for you but they don't always guarantee people the best deal or even the right one.

"We want comparison sites to treat customers fairly by being upfront that they don't cover the whole market and more transparent about what is and isn't included in the policies they're selling."

The customer watchdog Consumer Futures said PCWs vary in their transparency and quality of customer service and pushed for a voluntary accreditation scheme.

Insurance group Admiral owns Confused.com, while Esure has a 50% stake in GoCompare.com.

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