(BFW) BSkyB, Vodafone Mobile Merger Could Bring Big Savings, UBS Says

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BSkyB, Vodafone Mobile Merger Could Bring Big Savings, UBS Says 2014-01-20 07:24:55.440 GMT

By Blanche Gatt Jan. 20 (Bloomberg) -- BSkyB, Vodafone talks, as reported in the Sunday Times yday, may mean cos seek to market a joint quad-play product before BT starts its mobile service later in the year, UBS says in note. * UBS says BSkyB, Vodafone could “take this a step further and announce a merger” * Sees merger of BSkyB/Vodafone U.K. yielding “significant” cost/revenue synergies * Alternative scenario would be Vodafone merger with Sky Europe to form pan-European quad-play operator: UBS * Says BSkyB trading still resilient amid BT Sport competition * Both BSkyB and BT will seek to avoid a “bruising encounter” at the Premier League rights auction * Sees both sides agreeing wholesale deal on sports during 2014, most likely after May 2014 * NOTE Jan. 16: BSkyB Faces Most Competitive Premier League Auction Ever: CS

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Blanche Gatt in London at +44-20-7392-0351 or bgatt@bloomberg.net

To contact the editor responsible for this story: James Ludden at +44-20-7673-2645 or jludden@bloomberg.net

>>> Brokers Upgrades & Downgrades

>>> Up
*AVEVA RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*CENTRICA RAISED TO OUTPERFORM VS SECTOR PERFORM AT RBC
*DRAGON OIL RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML
*HARGREAVES LANSDOWN RAISED TO NEUTRAL AT CREDIT SUISSE
*HERMES RAISED TO HOLD VS SELL AT DEUTSCHE BANK
*INDRA RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
*K+S RAISED TO NEUTRAL VS REDUCE AT NOMURA
*LUXOTTICA RAISED TO BUY VS HOLD AT DEUTSCHE BANK
*NOBEL BIOCARE RAISED TO BUY VS NEUTRAL AT CITI

>>> Down
*AIR FRANCE CUT TO NEUTRAL VS BUY AT UBS
*ALLIANZ CUT TO SELL VS HOLD AT SOCGEN
*BURBERRY CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
*LANXESS CUT TO REDUCE VS NEUTRAL AT NOMURA
*PERNOD-RICARD CUT TO UNDERPERFORM VS NEUTRAL AT EXANE
*SAFILO CUT TO HOLD VS BUY AT DEUTSCHE BANK
*SPECTRIS CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*SSE CUT TO UNDERPERFORM VS SECTOR PERFORM AT RBC


>>> PT Change
*K+S PT RAISED TO EU30 VS EU24 AT MACQUARIE, STAYS OUTPERFORM

>>> Initiation
*DASSAULT SYSTEMES RATED NEW OVERWEIGHT AT JPMORGAN; PT EU110

>>> Call
>> Stock
*LUFTHANSA ADDDED TO UBS’S MOST PREFERRED LIST

>>> What to look at today - 20/01/2014

US market is closed today : Martin Luther King Day
US market closed mixed with Dow higher and S&P & Nasdaq Loewer...Flow where on the light side with 729mil shares...Intersting to note tha SKEW is trading close to high 140 mark @ 139,62 +2,76%...China Q4 GDP slightly better than expected at 7.7%, but 2013 GDP at 7.7% - inline with ests - still marks a 14-year low. Industrial production slows to a 5-month low, while consumption is in line. Lending rates are up sharply in China,
in part due to diminished expectations of more easing from PBoC amid "steady"economic transition. Seasonality ahead of the new year holidays also keeping borrowing rates elevated...Japan final industrial production registers first decline in 3 months; Separately in Japan, the election of Nago city mayor may jeopardize PM Abe's plans to shift US air force base in Okinawa. Nikkei-0,59% Shanghai -0,69%

Eur$ 1,3540 S&P FUt-0,04% European Fut -0,20% Dax Fut -0,30% (DBK helping it)

Keep an ey on :
- ABI BB : AB InBev Buys Oriental Brewery Back From KKR for $5.8b
- ALFA SS : Alfa Laval open to French acquisitions
- ALT FP : Altran CEO Salle Sees Improved Growth in 2014: France Info
- AREVA FP : Areva Studies Possible Sale of Namibian Water-Desalination Plant
- BC IM : Cucinelli a Must-Have Stock for the Long Term, Mediobanca Says
- ALCAR FP : Carmat Artificial Heart Patient Survives Critical Month: JDD
- CLS1 GY : McKesson cuts stake in Celesio to 0.50%
- COL SM : Colonial Says Brookfield Made Offer for Debt, Capital Increase
- DBK GY : Deutsche Bank 4Q Pretax Loss EU1.15b, Est. EU628.5m Profit --> indicated -3,4% in pre market
- GBF GY : Bilfinger could make large acquisition this year
- JMT PL : Barron's +ve article on Jernimo, Even with the margin-pinching investment needed to ride out a competitive market in Poland, companyhas lots of room to grow.
- KER FP : La Redoute to see EUR 315m infusion from Kering ahead of sale
- MRW LN : U.K.’s Morrison’s Treasurer in Insider-Trading Probe: Telegraph
- MRW LN : Sandell build a position on the company, holding less than 3%
- RR/ LN : SFO Gets Rolls-Royce Bribery Allegations Probe Funds Boost: FT
- SAS SS : SAS Says Copenhagen Will Remain Main Hub, Sydsvenskan Reports
- STRS IT : Strauss Advances on Report of Plans for Coffee Unit IPO (TPG stake 29,6%)
- STS IM : Ansaldo Energia Received Expressions of Interest, Corriere Says
- TNET BB : Telenet interested in De Vijver Media
- UG FP : Dongfeng Motor Falls After Peugeot Said to Decide on Funds
- UG FP : French Ministers Say PSA Peugeot Citroen Will Remain French
- VOD LN : Vodafone, BSkyB Hold Talks on Broadband Deals: Sunday Times
- VOW3 GY : VW Will Reach Truck-Unit Target Earlier Than Expected, FAZ Says
- WIN GY : Wincor Nixdorf 1Q Rev. Misses; Ebita in Line; Reiterates Forecast

>>> Asian Update

Asian Market Update: China GDP slightly higher than expected while industrial output slows as liquidity tightens

***Economic Data*** - (CN) CHINA DEC NEW HOME PRICES M/M: PRICES RISE IN 65 OF 70 CITIES V 66 PRIOR; Y/Y: PRICES RISE IN 65 OF 70 CITIES V 69 PRIOR - (CN) CHINA Q4 GDP Q/Q: 1.8% V 2.0%E; Y/Y: 7.7% V 7.6%E; 2013 GDP: 7.7% V 7.7%E (14-year low) - (CN) CHINA DEC INDUSTRIAL PRODUCTION Y/Y: 9.7% (5-month low) V 9.8%E; INDUSTRIAL PRODUCTION YTD: 9.7% V 9.7%E - (CN) CHINA DEC RETAIL SALES Y/Y: 13.6% V 13.6%E; RETAIL SALES YTD: 13.1% V 13.1%E - (CN) CHINA YTD FIXED URBAN ASSETS: 19.6% V 19.8%E (multi-year low) - (CN) CHINA Q4 BUSINESS CLIMATE INDEX: 119.5 V 121.5 PRIOR - (JP) JAPAN NOV FINAL INDUSTRIAL PRODUCTION M/M: -0.1% (3-month low) V +0.1% PRELIM; Y/Y: 4.8% V 5.0% PRELIM; CAPACITY UTILIZATION M/M: -0.5% V +1.2% PRIOR - (AU) AUSTRALIA DEC TD SECURITIES INFLATION M/M: 0.7% (4-year high) V 0.2% PRIOR; Y/Y: 2.7% (5-month high) V 2.4% PRIOR - (NZ) NEW ZEALAND Q4 WESTPAC EMPLOYMENT CONFIDENCE INDEX: 103.4 V 102.8 PRIOR - (NZ) NEW ZEALAND REINZ NOV HOUSE PRICE INDEX: 3,847 V 3,885 PRIOR; M/M: -1.0% V 1.2% PRIOR; HOUSE SALES Y/Y: -1.1% V -6.6% PRIOR - (KR) SOUTH KOREA DEC PPI M/M: +0.2% v -0.2% PRIOR; Y/Y: -0.4% V -0.9% PRIOR (smallest decline in 15 months) - (UK) UK JAN RIGHTMOVE HOUSE PRICES M/M: +1.0% (record increase for Jan) V -1.9% PRIOR; Y/Y: 6.3% (largest increase since Nov 2007) V 5.4% PRIOR

***Observations/Insights*** - China property prices slow in December - m/m increase is 0.4% in all-70 cities v 0.5% prior while y/y increase matches prior month's record high of 9.9%. - China Q4 GDP slightly better than expected at 7.7%, but 2013 GDP at 7.7% - in line with ests - still marks a 14-year low. Industrial production slows to a 5-month low, while consumption is in line. Lending rates are up sharply in China, in part due to diminished expectations of more easing from PBoC amid "steady" economic transition. Seasonality ahead of the new year holidays also keeping borrowing rates elevated. - Japan final industrial production registers first decline in 3 months; Separately in Japan, the election of Nago city mayor may jeopardize PM Abe's plans to shift US air force base in Okinawa. - New Zealand reports 6.3 magnitude earthquake, briefly sending Kiwi dollar lower. - Deutsche Bank released prelim Q4 pretax loss following Friday press speculation of lower guidance, acknowledging material charges of €623M on Credit Valuation Adjustment.

***Fixed Income/Commodities/Currencies*** - (CN) Daily Shibor fixings: O/N: 3.8880% v 2.8170% prior (5th consecutive rise, highest since Dec 25th); 1-week: 6.3290% v 4.7760% prior (3rd consecutive rise, highest since Dec 20th) - (JP) BOJ offers to buy ¥110B in JGB with maturity less than 1-yr and ¥400B in JGB with maturities of 5-10 yr - SLV: iShares Silver Trust ETF daily holdings rise to 10,029.2 tonnes from 9,894 tonnes (first rise since Nov 17th, highest level since Dec 24th) - GLD: SPDR Gold Trust ETF daily holdings rise 7.5 tonnes to 797.1 tonnes (first rise since Dec 21st)

- Fluctuations in USD majors are tracking the volatility in equities following the release of economic data in China. Early in the day, AUD/USD hit 3 1/2 year lows below $0.8760, then rose above the $0.88 handle after a raft if China datapoints before paring those gains. NZD/USD saw an abrupt decline of over 30pips to $0.8230 on reports of a magnitude 6.3 earthquake off the coast of New Zealand. USD/JPY tested the downside of the ¥104 handle for its third consecutive session of modest losses, while EUR/USD traded in a 30-pip range, supported by $1.35 handle as well as a well-defined trendline going back to May of 2013.

***Speakers/Political/In the Papers*** - (CN) China Commerce Ministry (MOFCOM): $1.1T spending bill passed by US Congress last week clashes with fair trade - financial press - (CN) Shanghai Environmental Monitoring Center: Air condition is moderately polluted with PM2.5 level of 229.2 - (CN) Former PBoC adviser Li Daokui: Sees China 2013 GDP at 7.7% vs 7.5% official target; Sees China GDP at 7-8% range for the following 10 years - Chinese press - (CN) Beijing Mayor Wang Anshun: Important to control air pollution in Beijing; Promises to the central govt that Beijing will improve air quality by 2017 - Chinese press - (CN) China State Council issues "the No.1 central document" to support agricultural development: To improve food security, seek sustainable agricultural growth, deepen rural land reforms, and promote fiscal support for rural areas - (CN) China Navy said to be building its second aircraft carrier - Chinese press - (JP) The mayor of Japan's Nago city, Susumu Inamune, wins 2nd term in Sunday's elections - press - (JP) Japan Chief Cabinet Sec Suga: Plan to relocate US base in Okinawa remains unchanged; Disappointed with Nago mayoral outcome - (JP) Japan PM Abe said to make the decision on whether to continue raising sales tax to 10% over the course of 2014 - NHK interview - (JP) BOJ to maintain FY15 target for beating deflation - Kyodo News - (KR) South Korea financial regulators confirm data leaks for at least 20M bank and credit card users in S Korea - press - (NZ) Magnitude 6.3 earthquake reported in Wellington, New Zealand

**Europe** - (IT) Italy's DP party leader Renzi and former PM Berlusconi reach agreement on political reform that will make Italy more governable - press

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 -0.5%, S&P/ASX -0.2%, Kospi +0.3%, Shanghai Composite -0.5%, Hang Seng -0.5%, Mar S&P500 flat at 1,834, Feb gold +1.2% at $1,254, Feb crude oil -0.3% at $93.67/brl

Notable movers by sector in Asia: - Consumer Discretionary: Yongsheng Advanced Materials 3608.HK +5.0% (positive profit alert); Meike International Holdings -7.6% (profit warning) - Consumer staples: Kweichow Moutai 600519.CN +4.6% (FY13 results) - Financials: Create Technology & Science 000551.CN +5.7% (FY13 guidance); Glorious Property Holdings 845.HK -28.1% (privatization plan rejected) - Materials: Tangshan Jidong Cement +2.1% (FY13 guidance) - Technology: Beijing Ultrapower Software 300002.CN +10.0% (resumes trading; enters strategic alliance with Qihoo); Sunny Optical Technology Group 2382.HK +4.5% (acquires stakes in 3D image company); Jolimark Holdings 2028.HK +14.2% (positive profit alert); Nintendo 7974.JP -9.9% (cuts FY13/14 guidance) - Energy: Zhejiang Jinggong Science & Technology 002006.CN -3.6% (FY13 guidance); Nucoal Resources NCR.AU +23.8% (announces submission to NSW govt) - Industrials: First Tractor 38.HK +6.2%, Winall Hi-tech Seed 300087.CN +4.1%, Gansu Dunhuang Seed 600354.CN +2.0%, Grand Agriseeds 300189.CN +4.2% (China State Council issues "No.1 central document" on agriculture) - Healthcare: Sinocare Inc 300298.CN -7.5% (FY13 guidance)

**Europe** - DB: Reports prelim Q4 pretax loss €1.2B v profit €300M y/y; Rev €6.6B v €7.9B y/y

(NYPost) Taper talk can’t stop the stock-market bulls

It’s damn the taper, the bulls are out of the gate!
Wall Street’s prognosticators are calling for the Dow Jones industrial average to soar like a rocket well into next year. That’ll take it as high as 20,000, with the broader S&P 500 crossing 2,000 by this year’s end. The Dow closed last week at 16,458.56, and the S&P at 1,838.70.
The Fed’s slow tapering is not holding back this market. The financial fireworks are igniting US stock trading. And that’s despite some recent choppy sessions caused by weak earnings and some dollops of bad economic news.
“The reason we are bullish? I still get the sense the world is underallocated for equities,” Savita Subramanian, head of US equity and quantitative strategy at BofA Merrill Lynch global research, told The Post. “I would argue that we are in the very early innings of a great rotation we have been talking about — out of bonds, into equities.”
BofA Merrill Lynch has a year-end target of 2,000 for the S&P, about a 10 percent-plus price returns. And BofA Merrill Lynch is not alone. Goldman Sachs sees the S&P 500 hitting 2,100 points at the end of next year, saying it should close this year at 1,900. That’s roughly in line with what Stuart Freeman, chief equity strategist at Wells Fargo Advisors, called for late last year.
Morgan Stanley chief US equity strategist Adam Parker has called for the S&P 500 to reach 2,014 — in 2014.
Thomas Lee, chief US equity strategist at JPMorgan, is more outspoken, predicting the S&P 500 will close the year at 2,075, a 12 percent jump from a year earlier.
But equities may also be a roller- coaster ride, some experts warn.
“I think you are going to have a volatile year in the market,” Doreen Mogavero, a veteran New York Stock Exchange floor trader, told The Post. “There’s no question the US has one of the strongest economies on the globe — an attractive place to put your money. From that standpoint, you will probably see the year end higher.”
“We need about a 25 percent upside for a 20,000 Dow,” said David Altschuler, a financial planner in Woodbury, NY. “Many US corporations have already squeezed everything they can out of the efficiency orange. Achieving top-line growth and keeping expenses under control will be essential to a rising stock market.”
A new E*Trade survey of “self-directed” online US retail investors shows 66 percent are “bullish on the market,” while 34 percent are bearish. Sixty-two percent see opportunities to beat the market through individual stocks.
The Fed’s decision to shrink its monthly bond purchases to $75 billion from $85 billion — with the prospect of more reductions — could foreshadow a period of rising interest rates.
But BofA Merrill Lynch’s Subramanian is undeterred.
“Equities actually do pretty well, and leadership shifts from more credit-sensitive areas like consumption plays and financials, to industrials, technology — even energy stocks do well in the early stages of a rising rate cycle,” she said.

>>> Gstaad Hotel Palace not for sale despite regular massive offers

Gstaad Hotel Palace not for sale despite regular massive offers
Hotel Palace, the Gstaad, Switzerland luxury hotel, is not for sale, Der Bund reported. Hotel Palace owner Andrea Scherz told the Swiss daily in a lengthy interview he has received and examined several offers, including an offer three years ago for an amount in the hundreds of millions of Swiss Francs, but together with his family always reaches the conclusion that he does not want to sell.

Scherz said the hotel is his life's work and he would never sell out of respect for his predecessors, as long as the hotel is viable from an economic perspective.

Scherz said his family has invested around CHF 100m in the hotel. Andrea, his brother Thierry and father Ernst own a combined 70% in the hotel with a further 10% being held by a Middle Eastern investor and 20% by the Dassault brothers.


Source Der Bund

FT : Derivative-linked Ucits to stay ‘non-complex’

Derivative-linked Ucits to stay ‘non-complex’

Retail investors will not be required to seek financial advice before buying funds that make use of derivatives, such as absolute return funds, following an agreement in the European Parliament last week.
Some parliamentarians had been pressing for derivative-linked Ucits funds to be classified as “complex” as part of the second Markets in Financial Instruments Directive (Mifid II), the wide-ranging reforms of European securities markets that were finalised on Wednesday.
All Ucits are currently classified as “non-complex” so they can be sold to retail investors on an execution-only basis. A change to reclassify derivative-linked Ucits funds as “complex” would have meant retail investors would have needed to be provided with advice as to their suitability before purchase. However, the parliament effectively rejected this option, which would have had a significant impact on the £36bn UK absolute return fund sector.
“There does not appear to be any change in the premise that all Ucits (other that structured Ucits) will be deemed as non-complex,” said Monica Gogna, a partner at Pinsent Masons, the law firm.
The Mifid II directive also specifies that investment groups must act in the “best interests” of clients at all times, that disclosure of product risk and returns must not be misleading, and that clients must be informed whether any advice being provided is independent or not. It also called for all “toxic” products to be withdrawn without defining what these might be.
The final text is not expected to be circulated before the end of this week at the earliest but some parliamentarians are promising to continue to fight for change.
Sven Giegold, a German Green MEP and member of the committee on economic and monetary affairs, said: “The Mifid II deal is better than the current situation. Europe will have to come back to the issue of Newcits [hedge fund strategies in a mutual-fund wrapper] in future reforms of the Ucits regulatory framework.”

FT : Hedge fund pair bet on British bank Aldermore

Hedge fund pair bet on British bank Aldermore

Two leading hedge funds have invested in Aldermore, a small bank that launched in the UK in 2009, in the latest sign of growing investor appetite for British lenders.
Toscafund and Lansdowne Partners have injected £40m of fresh capital into the bank, helping to fuel its growth in retail and small business lending ahead of a potential stock market listing later this year.

Aldermore said the deal would “establish a wider dialogue with UK institutional investors as the bank continues to review its capital markets strategy which may, among other strategies, include an initial public offering.”
As one of the biggest investors in Lloyds Banking Group, Lansdowne has been bullish on the prospects for UK banking. Meanwhile, Toscafund is chaired by Sir George Mathewson, former chief executive of Royal Bank of Scotland.
The outlook for UK retail banking has improved dramatically in the past year, as UK banks have slashed costs and benefited from wider margins on loans. The improving prospects have attracted strong investor interest in the sector. Last year’s sale of £3.2bn government-owned shares in Lloyds was oversubscribed and investors are now turning their attention to a string of other retail banking stocks that are expected to list on the stock market over the next couple of years.
TSB – 630 branches that have been spun out of Lloyds – is expected to float in the summer, while Metro Bank and Virgin Money are also eyeing listings. RBS is planning to float its Williams & Glyn's business, while Santander UK, the division of the Spanish bank, is considering pushing ahead with its long-sought after London listing later this year.
Metro Bank, which opened in central London in 2010, on Sunday completed a £387.5m fundraising to accelerate the opening of more branches.
New banking entrants are benefiting from a drive by politicians and competition bodies to weaken the dominance of the big four banks.
Ed Miliband, Labour leader, last week said that if he won the 2015 election he would force the big lenders to divest hundreds of branches to create two new competitors.
Aldermore launched in the UK in 2009 as an SME focused lender. It branched into residential mortgages a year later and has since lent more than £3bn to small business and homeowners.
Initially backed by AnaCap, the private equity group, it has also attracted investment from Morgan Stanley Alternative Investment Partners and Goldman Sachs Asset Management. In the first half of 2009 it made a profit of £9.2m.
Phillip Monks, the bank’s chief executive said the latest fundraising would “provide us with the opportunity to do even more to champion Britain’s small businesses, the lifeblood of our economy.”

FT : Al-Qaeda: On the march

Al-Qaeda: On the march

The worst job in the world, western spymasters used to joke, was being number three in al-Qaeda.
At its peak, the US drone programme – with Hellfire missiles picking off al-Qaeda leaders seemingly at will in the remote mountains of Yemen and the tribal borderlands of Pakistan – meant becoming number three was as good as being dead.

But al-Qaeda has proved to have a Hydra-like quality. Far from withering, it has proliferated. The group and its affiliates have never controlled more land, had as many recruits in their ranks or been as well financially resourced as now.
In recent months, al-Qaeda franchises have scored successes or near-victories in an arc stretching from the Sahel in east Africa through to the Levant via the Horn of Africa, Yemen and Iraq.
In 2012, al-Qaeda forces came within hours of seizing control of Bamako, the capital of Mali. In 2013, its militants radicalised the conflict in Syria. This year has begun with fighters storming the city of Fallujah in Iraq, just 70km from Baghdad. They still control it.
Last Wednesday, the US House Intelligence committee opened an inquiry to investigate the resurgence of the group. Mike Rogers, the Republican congressman who chairs the committee, called the demise of al-Qaeda a “false narrative” and warned against complacency in Washington. He cautioned: “The defeat of an ideology requires more than just drone strikes.”
Three fundamental questions are of concern to the west in its handling of the group’s rebound. How resilient is the resurgence, how centralised is its structure and how much of a threat does it still pose internationally?
The hope among its opponents is that al-Qaeda’s renaissance belies a still dangerous but fatally weakened foe. Many see the group as a disparate set of franchises that have fed off disenchantment caused by the Arab Spring, but which ultimately are either locally focused and pragmatic. Or they believe it will burn itself out through its own brutality, alienating local Muslim populations by persecuting them as much as waging jihad against the west and its regional allies.
They point to the situation in Syria, where jihadis fighting for the Islamic State of Iraq and al-Sham are committing atrocities against civilians, turning other Islamist groups against them.
But Isis’s brutality – and the “seeds of its own destruction” narrative of al-Qaeda that is perpetuated by such actions in the west – is far from the complete picture.
Al-Qaeda is certainly disparate and no longer controlled to the same degree by a central authority. But it has proved very adaptable, and very aware of the mistakes it made in the past.
Afghanistan and Pakistan
In Afghanistan, the rout of al-Qaeda has been extensive. Intelligence analysts put the number of al-Qaeda operatives functioning in the country as low as 200, although many fear a rebound if aid to the fragile Afghan government dries up.
For now, al-Qaeda’s core presence in the area – and the world – remains in Pakistan, where Ayman al-Zawahiri, the successor to Osama bin Laden, is based.
Its links in Pakistan run deep. It is telling that it took the US a decade to find the whereabouts of bin Laden, who turned out to be living in a compound in urban Abbottabad. While al-Qaeda is known to have a significant presence in the Federally Administered Tribal Areas of the country, many analysts believe its core leadership operates comfortably – or could even be based in – its most populated, metropolitan areas.
The US drone campaign explains why. “You can’t just go and bomb an urban area,” says Shashank Joshi, research fellow at the Royal United Services Institute, a UK think-tank. “Al-Qaeda has adapted to our counterterrorism measures and it has become more resilient. [While] its leadership has been shattered at various points, it is clearly not any longer an organisation dependent on a small coterie of individuals for its survival.”
Syria and Iraq
It is now difficult to imagine that before the 2003 US invasion of Iraq, al-Qaeda and affiliated groups had almost no presence in the Levant. The ill-fated US occupation created both a lawless environment for radical jihadi governments to take root and fomented an ideologically potent cause for them to pursue.
Al-Qaeda’s early success in Iraq under Jordanian Abu Musab al-Zarqawi was unwound from 2006, thanks to the US-funded sahwa (awakening) of local Sunni tribes in Iraq’s Anbar province, who revolted against al-Qaeda’s excesses. It has since been resurgent. In Syria, the relentless and brutal assault on mostly peaceful Sunni protesters by Bashar al-Assad, the country’s Alawite president, has provided al-Qaeda with an expansive presence in the region. In Iraq, political mismanagement on the part of President Nouri al-Maliki and the spillover from Syria have contributed to the group’s renewed presence in Anbar province.
Both Jahbat Al-Nusra, led by Abu Mohammed al-Joulani, and the Islamic State of Iraq and al-Sham, led by Abu Bakr al-Baghdadi, claim affiliation to al-Qaeda in the region.
But in Syria, it is Al-Nusra – Syrian- led and more tolerant – that has the support of Mr Zawahiri, and not the more brutal Iraqi-dominated Isis, which has already alienated swaths of the indigenous Syrian population with its ruthlessness.
Yemen
The remote mountains of southern Yemen gave birth to al-Qaeda and to this day remain one of the group’s most cohesive strongholds in the world. The group has found solace among the mountains and fiercely independent tribes of the south, tapping into the deep pool of resentment born of grinding poverty, anti-northern sentiment and, more recently, US drone strikes that have all too often hit innocent targets.
The Yemeni and Saudi branches of the group merged in 2009 to form al-Qaeda in the Arabian Peninsula, led by Nasir al-Wuhaishi, Osama bin Laden’s former secretary and one of Mr Zawahiri’s closest allies. AQAP is considered by western intelligence agencies the most dangerous branch of al-Qaeda, and it has proved resilient: a government campaign in 2012 to expel the group from Abyan and Sabwah provinces is still continuing.
AQAP has more recently adapted its method of exporting jihad by using other militant groups around the world as proxies.
“This may be the kind of relationship that we increasingly see between AQAP and other groups with the promotion of Mr Wuhaishi – loose operational guidance with seed funding and, where possible, the provision of fighters to participate in high-profile plots, especially in the fluid security environments of north Africa,” says John Nugent, terrorism analyst at Control Risks, a security consultancy.
Horn of Africa
In the Horn, al-Qaeda’s current largest affiliate is al-Shabaab (the Boys), the former youth movement of the Islamic Courts Union (ICU), the radical Islamist group that once controlled most of Somalia.
While it has been forced to cede huge swaths of territory in the past 18 months, it remains a well-resourced organisation, and embedded throughout Somalia.

The UN estimated it earned $50m a year when it controlled the port of Kismayo. It has also exploited the illegal ivory trade, killing hundreds of elephants in the region, according to environmental campaigners.
As al-Shabaab has been pushed back, it has sought to export violence to the home soil of those fighting it, such as Kenya. The group orchestrated the deadly Westgate shopping mall attack in Nairobi last September, in which 224 people died.
The ICU itself had strong ties with al-Qaeda core, with many of its founding leaders trained in Afghanistan, but al-Shabaab has often chosen to follow its own path.
In 2010 Mr Zawahiri sought to replace al-Shabaab’s leader, Ahmed Godane, but his ruling
was ignored. Mr Godane swore allegiance to Mr Zawahiri again in 2012.
The Sahel and Maghreb
More than a year after staging a spectacular attack on a remote Algerian oil and gas facility, and 18 months after nearly seizing control of Mali, al-Qaeda of the Islamic Maghreb appears on the defensive. French troops have pushed back AQIM, led by Abu Musab Abdel Wadoud, a veteran of Algeria’s 1990s civil war. Algeria’s security forces have cornered extremist groups.
But from Mauritania to Libya, the longstanding ethnic and political grievances still fester. The abuses of the civil war that fed Algerian Islamist anger have never been resolved. The official neglect that led ethnic Tuaregs to seek an autonomous Saharan homeland has worsened.
“No one should underestimate the narrow margin that existed between AQ and their goal of seeking to take over the organs of a whole state and create a safe haven,” says Stephen O’Brien, the UK prime minister’s special envoy to the Sahel, referring to AQIM’s near takeover of Bamako, Mali’s capital, in 2012.
“What is clear is that the franchise’s approach has become much more about winning over the hearts and minds of populations by the provision of basic services.”
Different approach
Last month al-Qaeda broke new ground: it apologised. “We acknowledge our mistake and guilt,” Qassim al-Rimi, a commander of AQAP in Yemen, said in a video, referring to an attack on December 5 on the Yemeni Defence Ministry that killed 52 people – many in the attached hospital next door.
Behind the statement was recognition of the need to keep local populations onside, and the difficulties of doing so for such a violent, strict Islamist organisation.
The tension recurs frequently but al-Qaeda has shown that it has the will to resolve it.
If al-Qaeda’s threat to the west is perceived to have diminished, it is perhaps precisely because the group has learnt from the sahwa in Iraq and has been at pains to refocus on its core project: the establishment of al-Qaeda controlled “emirates” and, eventually, a larger caliphate. To do so, the group clearly recognises that it needs genuine and lasting popular support. It is why Mr Zawahiri supports al-Nusra in Iraq and fell out with Mr Godane in Somalia.
After French troops pushed AQIM out of Timbuktu in Mali last year, journalists stumbled across a rare document: letters from AQIM’s leader, Abu Musab Abdel Wadoud, to his commanders.
“The current baby is in its first days, crawling on its knees, and has not yet stood on its two legs,” Wadoud wrote. “If we really want it to stand on its own two feet in this world full of enemies waiting to pounce, we must ease its burden, take it by the hand, help it and support it . . . until it stands.”