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Rights reform unlikely ‘without leaving EU’

Senior Conservatives’ desire to claw back human rights powers from Europe could prove unworkable unless the UK leaves the European Union altogether, the justice secretary has been told by his own officials. Chris Grayling has been advised by Whitehall mandarins that the UK would be able to pull out of the EU human rights charter only if it leaves the EU, after officials concluded that the UK must remain committed to the charter as part of its treaty obligations. The advice was set down in the Ministry of Justice’s review of the "balance of competences" between Westminster and Brussels. The study is part of a government-wide exercise to assess whether the EU rules are encroaching too far on British national life. Most of the reviews released to date, covering areas such as the internal market in goods and trade, tourism and the environment, have concluded that the balance of powers between the UK and the EU is broadly correct. But the MoJ review on fundamental rights was more nuanced, noting a "divergence of views on where the balance of competences should lie." The report comes as the Tories grapple with how to wrest back powers over human rights from the Strasbourg court and the European Union. Conservatives have long been calling on the prime minister to reassert the sovereignty of parliament over the European Court of Human Rights, which implements many of the rights in the EU human rights charter, and replace it with a ‘British bill of rights’. They have been incensed by decisions about prisoners’ voting rights and the extradition of Abu Qatada, a radical preacher. David Cameron appeared to be heeding those calls last month when he removed Dominic Grieve as attorney general. Mr Grieve flatly opposed the UK’s withdrawal from the ECHR which, he argued, would have damaging consequences for Britain’s reputation while also undermining human rights around the world. But the report suggests that the UK cannot withdraw from the EU human rights charter without triggering a wider transgression of treaty obligations. This could also have implications regarding withdrawal from the ECHR given that the Strasbourg European Court of Justice upholds elements of the EU charter. "The government’s position is that, as long as the UK is a member of the EU, it has a duty to implement all EU law that applies to it," officials concluded in the report. "Setting aside fundamental rights would amount to a failure to give full effect to EU primary law and would therefore constitute a breach of the UK’s treaty obligations." Some British judges have also expressed concern that parliamentary sovereignty is being exported, but many human rights lawyers maintain that the Conservatives’ attempts to intervene in human rights laws and the European Convention is both unworkable and undesirable. A Conservative spokesman said on Sunday. "Since we have yet to finalise our plans and decide between a number of options, any comment now is pure speculation. However, the next Conservative manifesto will contain radical plans to reform our human rights law, which a majority Conservative government will deliver."

UK report into Muslim Brotherhood delayed

The publication of a UK government report into the Muslim Brotherhood has been delayed as ministers and officials wrangle over its findings, the Financial Times has learnt. David Cameron asked Sir John Jenkins, Britain’s ambassador to Saudi Arabia, to conduct an investigation into whether the Egyptian political group should be classified as a terrorist organisation. The prime minister did so after coming under heavy pressure from allies in the Gulf such as the United Arab Emirates and Saudi Arabia, which has banned the organisation. Whitehall officials have told the FT the report has found the group should not be labelled a terrorist organisation, and in fact has found little evidence that its members are involved in terrorist activities. But ministers are so concerned about the reaction from Britain’s Middle East allies that they have stalled publication for several weeks, according to two people with knowledge of the report. One person said: "Sir John will say that the Brotherhood is not a terrorist organisation. The Saudis and Emiratis will then be very upset with us." According to one senior person in the Foreign Office, the Abu Dhabi royal family, the al-Nahyan, have been particularly vociferous about the dangers posed by the Brotherhood. The person said: "They complain that their countrymen do not feel safe in London with Brotherhood people walking around. The pressure has been quite sharp." Mr Cameron spoke to Mohammed bin Zayed al-Nahyan, the Crown Prince of Abu Dhabi, on Thursday. According to an official record of the meeting sent to journalists by Number 10, the two spoke about Iraq and Gaza, but not Sir John’s report. Since the government commissioned the report on the Brotherhood, the UK and its western allies have grown increasingly concerned about financial support for the Islamic State of Iraq and the Levant, known as Isis, which has over-run swaths of north and central Iraq from its base in eastern Syria, helped by reported flows of money from private donors in the Gulf. The Brotherhood, which dates back to 1928, came to power in Egypt’s election in 2012 before being ousted by a military coup last year. Since losing power, Cairo’s military-backed interim government has designated it a terror organisation, jailing its leaders and blaming it for a number of attacks – including the murder in February of three tourists on a bus in Egypt’s Sinai peninsula. The Brotherhood has denied responsibility. Earlier this year a court in Cairo sentenced 529 Brotherhood members to death in a significant escalation of its crackdown. Saudi Arabia and the United Arab Emirates, two of Britain’s closest diplomatic and commercial allies in the Middle East, have embarked on their own operations against the Brotherhood. The Saudis have followed the Egyptian example of banning it altogether. The Brotherhood has been operating in the UK since 1995. Fears that it could be engaged in extremist activities in the country were enough to trigger Mr Cameron’s demand in April for an investigation, but some in the coalition government believe that was an overreaction which could backfire. One senior government figure warned at the time: "It risks turning supporters of a moderate, non-violent organisation that campaigns for democracy into radicals." According to Whitehall sources, Sir John has found that the group does not pose a significant terror threat in the UK. His findings were due to be published by the end of last month, but government officials indicated that ministers were still finalising how they would present the conclusions. Number 10 declined to comment.

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Roche Hostile Bid for Chugai Still Possible: Morgan Stanley MUFG 2014-08-17 20:37:18.379 GMT

By Sarah Gill Aug. 18 (Bloomberg) -- If media report of Roche buyout interest is true it is positive for Chugai shrs; is ~35% premium over current shr price if remaining stake bought at $10b: Morgan Stanley MUFG analyst Shinichiro Muraoka in a note * Restrictions on Roche’s stake have expired so Roche can change its stake without Chugai agreement * Rates Chugai overweight * Chugai 5 buys, 7 holds, 2 sells: Bloomberg data * NOTE: Chugai says it’s not in talks with Roche on buyout; Bloomberg earlier reported Roche said in talks to buy rest of Chugai in $10b deal * NOTE: Roche owned ~62% of Chugai as of June 30 * NOTE Friday Chugai ADRs rose 19% on 2,135 shrs; Chugai shrs rose 24% in Frankfurt trading on 2,527 shrs; Roche shrs fell 1%

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US banks plan ahead for UK exit from EU

Wall Street banks are drawing up preliminary plans to move some London-based activities to Ireland to address concerns that the UK is drifting apart from the EU. People familiar with Bank of America, Citigroup and Morgan Stanley told the Financial Times that they considered Ireland a favourable location for some of their European business if they needed to move them out of the UK. One said he was already planning to move some activities to Ireland. The people said their plans were in most cases still at very early stages. But they said the US banks had started preparing for the eurozone’s impending banking union that threatens to isolate Britain and, ultimately, for a possible UK exit from the EU. "I’m frankly looking at moving some activities to Ireland," said one senior UK-based manager at a Wall Street bank. "I think the Irish central bank and government would welcome this. It is not so much Brexit, more about legal entity optimisation." Most US and Asian banks have chosen to base their main European operations in the UK, giving them an automatic passport to carry out their services across all 27 countries in the EU. But senior US banking executives said the UK was unlikely to be granted the same "passporting" rights if it left the EU – the so-called "Brexit" scenario. Prime Minister David Cameron has promised to hold a referendum on a renegotiated EU membership if his Conservative party wins next May’s election. Executives at American banks in Europe are reluctant to speak publicly about the issue for fear of upsetting the UK regulators. One said: "I don’t think people are making enough of it – a lot of passported activities that cannot take place in London will not exist here any more." As the European Central Bank prepares to take charge of the biggest banks in the eurozone later this year, there are fears among some executives at US banks that this will drive a wedge between the UK and the rest of Europe’s financial system. Britain is already challenging an ECB policy in the European Court of Justice that would force clearing houses handling euro-denominated transactions to decamp from London to the eurozone. The UK hosts more than 250 foreign banks and last year it generated a financial services trade surplus of $71bn, about a third of which came from trade with the EU, according to TheCityUK, a financial lobby group. Most observers assume that if the UK did leave the EU then Frankfurt or Paris would be the most likely alternative for US banks looking to shift parts of their European activities out of the UK. But Ireland’s attractions for US banks include its low corporate tax rate, English speaking population, English-style legal system and eurozone membership. "Dublin is selling itself very hard at the moment," said one banker. Citigroup employs 2,500 people in Ireland in banking and markets, trade and treasury services and investor services. Bank of America and JPMorgan both have more than 500 staff in Ireland. All three have Irish banking licences that would allow them a passport into other EU countries if needed. Morgan Stanley has a hedge fund administration business in Dublin, but no Irish banking licence. Barney Reynolds, a partner at the law firm Shearman & Sterling, said: "The noises you hear from the American banks regarding Brexit are concerned ones. It is very complicated and expensive to move infrastructure like trading floors, but it is not impossible. If you are looking for one event that might trigger it, it is Brexit. "London could essentially end up as an offshore financial centre. That would mean there was a need for a big onshore financial centre in Europe and the obvious candidates would be Frankfurt or Dublin." The trend in recent years has been in the other direction with the US banks having moved activities out of Ireland. BofA has recently moved most of its $600bn fixed income and derivatives book from Ireland to the UK mainly for tax reasons, but also at the request of regulators. Goldman Sachs gave up its Irish banking licence last year when it sold its hedge fund administration business in the country. Goldman has looked at other EU locations for parts of its UK-based business, including Dublin, but for now it has decided against any move. JPMorgan has no plans to add to its Irish operations. Foreign banks in London warned about the possible consequences of departure in a submission to the Treasury published last month. The Association of Foreign Banks, whose members include BofA, Société Générale and Sumitomo Mitsui Trust Bank, said Britain should stay in the union given the volume of its business with the rest of the EU and the importance of influencing its rules. "If Britain withdraws from Europe, then foreign banks may reassess their reasons for maintaining their business in Britain and may decide to continue their business elsewhere," the group said.

BHP and Glencore set for cash return

Shareholders in two of the world’s largest mining companies could hear this week when surplus capital will be returned to them, in what would mark a milestone in the sector’s recovery from a period of ill-judged spending and poor returns. BHP Billiton, the world’s largest mining group by market capitalisation which is considering a spin-off of unwanted assets, will unveil annual results that could determine whether it implements a share buyback, a tool it last used in 2011. Glencore, the commodities trader that is also among the world’s largest miners, may also return cash to investors, according to some analysts. The Swiss-based group recently received more than $6bn from the sale of Las Bambas, a copper mine being built in Peru. A promise to return capital through either share buybacks or special dividends would signal to investors that global diversified mining houses expect a big increase in their free cash flow and are planning only relatively modest capital spending on new projects. That contrasts with recent years when miners benefited from high commodity prices but splurged large amounts of cash in chasing growth. Many shareholders are angry that they did not get a higher share of profits from the commodities boom and have urged a more disciplined approach from miners, many of which have also changed leadership in the past two years. "An announcement of a return of capital [from BHP or Glencore] would be an important moment for the mining sector, said Rob Clifford, analyst at Deutsche Bank. "Shareholders have been pressing for better returns and this is the first time the largest miners have been in a position to deliver since commodity prices have retraced and capital has been reined in." Mr Clifford said BHP was likely to announce a share buyback in the order of at least $3bn, and said Glencore could also signal a capital return when it announces half-year results on Wednesday. Neither company has committed itself to announcing a capital return. While BHP is considered more likely to do so, some analysts still think weaker commodity prices this year – particularly for iron ore – could force the Anglo-Australian miner to put its plans on ice. "On our forecasts, we do not expect BHP to have excess cash to be able to announce any capital management with the annual results," said analysts at Commonwealth Bank of Australia in a report. A further complication could be BHP’s plan to list a cluster of non-core assets in a separate vehicle. This could be announced this week after the miner said on Friday that its board would consider a demerger plan imminently. Depending on how BHP implemented a demerger, it could reduce the amount of capital available to be distributed via a buyback. Meanwhile Glencore has suggested it would devote some of the Las Bambas sale proceeds to cutting debt and to opportunities to grow. "Any surplus capital, subject to maintaining an efficient balance sheet . . . will be returned to shareholders, within an appropriate timeframe and structure," the group said this month. Menno Sanders, an analyst at Morgan Stanley in London, said there was a "very low probability of additional cash returns" from Glencore as either a special dividend or buy back.

Credit Suisse Caught Up in Espírito Santo Mess Securities That Swiss Bank Helped Put Together Played Role in Toppling Banco Espírito Santo

Banco Espírito Santo was bailed out and broken up this month. Agence France-Presse/Getty Images Credit Suisse Group AG CSGN.VX +0.68% helped sell billions of dollars of securities that ultimately played a role in toppling Portugal's second-largest bank.

The Swiss bank was responsible for putting together securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal's Banco Espírito Santo SA.

Many customers didn't realize that these vehicles were loaded with debt issued by various Espírito Santo companies and apparently served as a mechanism to finance the family-controlled empire, according to corporate filings and people familiar with Portugal's investigation into the Espírito Santo affair. It is unclear what, if any, direct role Credit Suisse had in selling the securities to bank customers.

More Behind the Collapse of Portugal's Espírito Santo Empire (8/12/2014) MoneyBeat: Eurofin's Bright Ideas for Espírito Santo Now those investment products are at the center of an unfolding scandal. Banco Espírito Santo was bailed out and broken up this month. Other parts of the Espírito Santo group have filed for bankruptcy amid alleged fraud and accounting problems. In addition to sinking the Portuguese stock market, the episode has undermined confidence in the European banking sector, analysts say.

Representatives of Credit Suisse and Espírito Santo declined to comment.

Portuguese regulators investigating the Espírito Santo mess have identified at least four offshore investment vehicles whose securities, mostly preferred shares, were sold with the help of Credit Suisse to Banco Espírito Santo customers, according to the people familiar with the investigation. Portuguese regulators, who received complaints about the products from customers who didn't understand what they were buying, are now making the bank buy back the securities. That caused crippling losses for the bank.

The offshore vehicles used at least some of the proceeds from selling the securities to buy more Espírito Santo debt, according to corporate filings. Regulators suspect the sales were part of an effort to prop up the bank and other Espírito Santo companies, the people say.

Three of the vehicles—named Top Renda, EuroAforro Investments and Poupanca Plus Investments—are based in Jersey, an island tax haven off France's northern coast. Credit Suisse served as "arranger and dealer" for those three vehicles, a role that included not just underwriting securities but also handling administrative and financial needs, according to corporate records filed with the Jersey Financial Services Commission.

A fourth vehicle, EG Premium, is in the British Virgin Islands, also a tax haven.

The people familiar with the investigation say all four entities are controlled, at least in part, by Swiss financial company Eurofin Holding SA, which was part-owned by Espírito Santo until 2009 and has had close business ties to the collapsed conglomerate. Portuguese regulators suspect Eurofin played a central role in Espírito Santo's financing and ultimate collapse, according to a person familiar with the investigation.

Eurofin said in a statement last week that it didn't sell or promote any investment products to Espírito Santo clients and that it has never designed products for retail customers. Eurofin also has denied playing a central role in the Espírito Santo situation.

It isn't clear who owns the four investment vehicles. Representatives of the trust company listed as custodian of the three Jersey entities didn't respond to requests for comment.

The vehicles invested primarily in debt issued by Espírito Santo companies, including the Portuguese bank, its Luxembourg-based parent and an Angolan mining- and infrastructure-investment company called Escom, according to corporate filings and internal Eurofin documents reviewed by The Wall Street Journal.

Poupanca, for example, reported a total of €426 million (about $570 million) in assets last year, about €1.3 million of which was in cash and money it was owed. The remaining €425 million was investments in long-term bonds issued by Espírito Santo companies, according to Poupanca's financial statements. Top Renda and EuroAforro's balance sheets consist of similar proportions of Espírito Santo debt. EG Premium was also a big buyer of Espírito Santo bonds, according to internal fund documents.

The annual reports of the three Jersey vehicles, which have been operating for more than a decade, say their "sole purpose" is issuing preferred shares, which are a cross between unsecured debt and equity.

The vehicles regularly issued new series of preferred shares in relatively small batches, sometimes just €30 million, according to filings. Each series of securities was marketed to small groups of Banco Espírito Santo clients via the bank's branches, according to one of the people familiar with the investigation. The small number of clients meant that, under Portuguese rules, there didn't need to be a fund prospectus detailing the composition of the securities, the person said.

Portuguese regulators believe the vehicles were designed to appeal to retail customers. "Aforro" and "poupanca" mean "savings" in Portuguese. "Top Renda" means "Top Income." Bank branch managers told retail customers that the products were as safe as deposits but with better returns, the person said.

The sale of preference shares allowed the vehicles to keep buying Espírito Santo debt. In February, for example, EuroAforro sold €182 million of preference shares, according to a corporate filing. It used the proceeds, as well as cash and money received from selling other unspecified assets, to buy €476 million of Banco Espírito Santo debt and about €82 million of EG Premium preference shares, the filing shows.

Credit Suisse had agreements dating back to the mid-2000s with EuroAforro and Top Renda to handle the issuance of up to $2.5 billion of each of their preference shares, according to corporate filings. Those programs were still active as recently as last year, filings indicate. Credit Suisse also has been responsible for Poupanca's preferred-share sales, according to filings.

Credit Suisse also was responsible for paying the three vehicles' operating expenses, including legal and audit fees and administrative costs, according to filings. Those expenses totaled tens of thousands of dollars a year.

Portugal's markets regulator late last year started examining the offshore vehicles' products after hearing from Banco Espírito Santo customers who were confused about what they had invested in, according to the person familiar with the investigation.

By early summer of this year, regulators had determined that about €2 billion of the vehicles' products were currently held by Banco Espírito Santo customers, the person said. Much of that had been sold to customers earlier this year, months after Portugal's central bank ordered Banco Espírito Santo to curtail its ties to other Espírito Santo entities.

Bank of Portugal Governor Carlos Costa said late last month that Banco Espírito Santo would have to buy back some of those products from clients, causing €1.25 billion in losses for the bank. Those losses helped topple the bank, which was bailed out early this month.

Mr. Costa said Eurofin was involved in the placement of securities to clients that caused the €1.25 billion loss. He also said the central bank is investigating why Banco Espírito Santo apparently didn't comply with orders to reduce exposure to other Espírito Santo entities.

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Deutsche Telekom Says High-Speed Internet to Cost EU25b: Focus 2014-08-17 12:13:34.929 GMT

By Dalia Fahmy Aug. 17 (Bloomberg) -- Connecting 90% of Germans with high- speed DSL internet would cost govt EU10b, reaching remaining 10% of people would need EU15b, Focus reports, citing Niek Jan van Damme, head of Deutsche Telekom’s domestic business. * Deutsche Telekom may buy cable providers such as Telecolumbus, Primacom * Govt wants high-speed internet across Germany by 2018

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To contact the reporter on this story: Dalia Fahmy in Berlin at +49-30-70010-6217 or dfahmy1@bloomberg.net To contact the editors responsible for this story: Andrew Blackman at +49-30-70010-6223 or ablackman@bloomberg.net Bruce Stanley, Will Hadfield

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Bidders in Talks to Buy ThyssenKrupp’s VDM, Sueddeutsche Says 2014-08-17 12:19:52.739 GMT

By Dalia Fahmy Aug. 17 (Bloomberg) -- Bidders for ThyssenKrupp’s VDM unit include financial companies and Schmolz & Bickenbach, Sueddeutsche Zeitung reports, without saying where it obtained the information. * ThyssenKrupp may have to restructure VDM if bids are far below book value

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Investor Urges New Tesco CEO to Cut $2b Dividend: Sunday Times 2014-08-17 09:33:46.486 GMT

By Anchalee Worrachate Aug. 17 (Bloomberg) -- Tesco should slash dividend payment unless it can be covered by free cash flow, Sunday Times cited interview with David Herro of Harris Associates which owns 3% of Britain’s largest supermarket company. * New Tesco CEO David Lewis from Unilever to begin work Oct. 1 * Lewis to spend months reviewing Tesco’s problems before coming up with rescue plan * NOTE: Tesco Had Worst Sales Decline in Two Decades, Kantar Data Shows

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To contact the reporter on this story: Anchalee Worrachate in London at +44-20-7073-3403 or aworrachate@bloomberg.net To contact the editor responsible for this story: Paul Dobson at +44-20-7673-2041 or pdobson2@bloomberg.net

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Carillion Weighs Increasing Offer for Balfour Deal: Sunday Times 2014-08-17 08:55:42.501 GMT

By Anchalee Worrachate Aug. 17 (Bloomberg) -- Carillion has four days left before deadline for its $5b merger proposal expires and it has to walk away for six months, Sunday Times reports, citing unidentified sources. * Carillion’s board and advisers were considering whether to offer Balfour’s investors larger slices of combined group * Balfour investors rejected deal in which Carillion offered 56.5% of merged entity, Sunday Times reports * NOTE: Balfour Beatty Reaffirms Rejection of Carillion Proposal

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To contact the reporter on this story: Anchalee Worrachate in London at +44-20-7073-3403 or aworrachate@bloomberg.net To contact the editor responsible for this story: Paul Dobson at +44-20-7673-2041 or pdobson2@bloomberg.net