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- Italian Press Largest shareholder Vivendi said it would abstain from voting on the measure at a shareholder meeting.

Nationalising Rolls-Royce’s nuclear submarine business, which powers the UK’s Trident deterrent, is one option under consideration by the government should the crisis at Britain’s premier engineering group deepen.

David Cameron’s office has had plans drawn up to protect UK interests as Rolls-Royce seeks to recover from five profit warnings in less than two years. Other scenarios include a merger of all or part of Rolls-Royce with BAE Systems, the UK’s biggest defence group.

The inquiry comes as nervousness grows over whether Rolls-Royce could face a foreign bid before its new chief executive, Warren East, is able to stabilise trading and restore investor confidence. Officials are concerned that Rolls-Royce’s management has no substantial experience of defending against hostile takeovers, according to sources familiar with the plans.

The state has protection against a potential hostile bid through a golden share, which bars Rolls-Royce from selling 25 per cent or more of its net assets or of the nuclear division without its consent. There is also a ceiling of 15 per cent on foreign ownership. These safeguards were built in when Rolls-Royce was privatised in 1987, having been rescued through nationalisation 16 years earlier.

However, a new owner could present an opportunity to improve the company’s performance, and benefit shareholders, Ministry of Defence analysts say.

Warren East seeks to get a grip on Rolls-Royce

New chief says ‘no’ to wholesale change as he aims to cut costs

In this scenario, investors could put pressure on the government to waive its veto at least for the group’s civil aerospace business, which is the world’s second-largest maker of aero-engines. Pratt & Whitney of the US and Siemens of Germany are considered potential bidders.

Philip Dunne, defence procurement minister, did not confirm the existence of the emergency plan for Rolls in an interview with the Financial Times last week. However he said the UK government was “concerned that Rolls-Royce performs and is capable of performing its nuclear obligations. We would definitely take a view in the event there was corporate activity,” he said.

Rolls-Royce is not just a critical supplier to UK defence through its design and servicing of nuclear reactors that power the Royal Navy submarines, it is also the biggest single employer in Britain’s aerospace sector, and a major exporter.

The 109-year-old company has been left reeling by a series of profit warnings rooted in poor performances in its defence operations, its marine engines, and latterly a slowdown in the lucrative aftersales service business on civil aero-engines.

The company refused to comment on the government’s emergency plan. A government spokesperson also refused to comment on the scenarios, though she added: “Rolls-Royce is a major contributor to the UK economy and is an important supplier of defence equipment to the government.”

The MoD in October prepared an extensive document for the government’s shareholder executive, and passed this to the Cabinet Office, setting out a range of options in the event of a bid.

However it was then asked to give more consideration to a possible nationalisation of the sensitive nuclear division, which is estimated to generate roughly £500m in annual revenue from military business.

These questions include what legislation would be required for a partial or total nationalisation, the regulatory issues, and the necessary consultation with the US, supplier of Trident ballistic missiles to the UK.

According to the 1958 mutual defence treaty with the US, any change to the operation of the factory making the nuclear reactor cores would require the agreement of US authorities.

Among other options that could be considered, the MoD suggests bringing in sovereign wealth funds to give Mr East time to implement his recovery strategy. However this is judged unlikely.

Though a merger with BAE is mooted, the MoD’s analysts question whether there could be resistance from the companies involved. Such a deal would also have the potentially undesirable effect of increasing the government’s reliance on BAE as a defence supplier. The MoD accounts for roughly 9 per cent of Rolls-Royce’s turnover.

Other options include the government acquiring a stake in Rolls-Royce. This latter option would be costly and a stake of more than 25 per cent would be required to have any impact on strategy.

AccorHotels (EPA:AC) of France appears to be on track for further M&A deals after last week’s USD 3bn acquisition of FRHI Holdings, The Sunday Times reported.

The FRHI deal will see Saudi Arabia’s Prince Alwaleed bin Talal become a major Accor investor via his Kingdom Holding investment fund, the report noted.

According to Sarmad Zok, who heads the hotel operations of Kingdom, the enlarged Accor will “clearly” be a predator rather than prey among its peers, the item reported.

InterContinental Hotels Group (NYSE:IHG), the UK-based hotel operator, is considered a likely target and may be vulnerable, the report said. It noted that IHG failed with its own bids for FRHI and rival US-based hotels group Starwood earlier this year.

Berenberg analysts suggested Chicago-headquartered Hyatt Hotels Corp, as well as IHG, is a potential target for consolidation, the report said.

Sunday Times

London estate agents have reported a surge in inquiries from wealthy Iranians looking to buy homes in prime districts of the capital in the expectation that sanctions against the country will be lifted next year.

Faisal Durrani, head of research at Cluttons, the property consultant and estate agent, said the company had been approached by several Iranians looking to buy homes in the £2m to £5m bracket.

“They want to understand the market as soon as possible for when they are allowed to invest abroad,” he said. “They want an asset that isn’t in the [Middle Eastern] region, and they are drawn by the strong capital values and the growth story.”

He added: “Some of them are concerned about the government changing direction in a few years’ time, and that sanctions could return. It’s a form of insurance policy, an international bolt hole.”

Trevor Abrahamsohn, an estate agent specialising in expensive north London homes, said he had sold Jersey House, a mansion with an asking price of £33m on The Bishops Avenue — a street known as “Billionaires Row” — to an Iranian buyer in 2014.

But he has also seen a spate of Iranians looking to rent property in London ahead of buying homes next year.

Wealthy Iranians have found it “extremely difficult” to buy property overseas under the sanctions regime, said Babak Emamian, a London-based Iranian mortgage broker and financial adviser.

Sanctions were first imposed on Iran in the 1970s but new measures were added in the 2000s amid an escalating dispute with the US over the country’s nuclear programme.

Specific people have been targeted via asset freezing, but Karen Mitchell, a partner at the law firm Charles Russell Speechlys, said the sanctions on Iran are different from those elsewhere in that “there are also restrictive measures which apply to ordinary Iranian people and businesses who have no connection with Iran’s nuclear programme”.

These include restrictions on money transfers, while certain UK banks avoid dealing with Iranians because of worries about breaching complex sanctions legislation, said Ms Mitchell.

Some Iranians were able to transfer money overseas before sanctions were tightened, while Ms Mitchell said large transfers to the UK can still be made with special permission from the Treasury.

Sanctions are expected to be gradually lifted in the coming months after Iran agreed a landmark deal with world powers.

London was once a centre for expatriate Iranians under the UK-backed Mohammad Reza Shah Pahlavi, who was overthrown in 1979, and the UK is still home to more than 80,000 Iranians. But the world’s biggest overseas Iranian community is now in the US.

The United Arab Emirates is also a popular destination for Iranian residential property investment, said Mr Durrani.

Prime central London homes have attracted thousands of overseas buyers in the past decade, with purchasers seeking an investment in a politically stable country or a bolt hole in a global city. But the market has faltered this year after prices reached record highs and the rate of new Asian and Russian buyers slowed.

The Federal Reserve is set to follow a much anticipated interest rate rise this week with two to four more increases next year, leading economists say.

Markets are bracing themselves for the first US rate rise in almost a decade on Wednesday. A Financial Times poll of 51 top economists highlights the stakes as any increase would have profound consequences for the world economy, particularly emerging markets.

While the Fed’s previous September forecasts pointed to four rises of a cumulative 100 basis points next year, markets have priced in a more gradual tightening process, because of doubts over the US economy’s capacity to weather tighter monetary policy and potential turbulence abroad.

Chinese officials have acknowledged that Fed rises would increase pressure on the renminbi and contribute to outward flows of capital, an outlook shared by many other developing economies. The European Central Bank’s chief economist, meanwhile, told the FT his institution stood ready to respond if the Fed’s actions increase global borrowing costs.

The Fed has gone to great lengths to prepare the markets for a quarter-point rise at this week’s meeting — a move expected by all but one of the economists surveyed. But there is no such consensus over how high interest rates will ultimately go.

Among those polled, 24 per cent expected two rises next year of 25 basis points each, 39 per cent expected three rises and 30 per cent forecast four rises.

Overall, the median projection in the FT poll is for the Fed to lift rates by 75 basis points in 2016 and a further 100 in 2017.

On the margins, two economists expect the Fed to lift its benchmark rate by as many as 300 basis points over the next two years. One cautions the central bank may only increase rates once more after December — by just 25 basis points — over the next 24 months.

Janet Yellen, the Fed chair, has suggested that moves will be gradual, but it is not clear whether there will be formal guidance to that effect in the Fed statement this week.

Several economists warned that the Fed’s ability to increase rates would be constrained by the combined effect of an economic slowdown and dollar appreciation against other currencies.

Overall, the economists put the odds of a technical recession in the next two years at roughly 15 per cent and the probability that the Fed would have to cut rates back to zero at 20 per cent.

Some on the Federal Open Market Committee have indicated they want to see firmer signs of prices heading in the right direction to justify future rises. Eric Rosengren, the Boston Fed president, told the FT last month: “If we weren’t seeing wages and prices moving up over time our willingness to keep raising rates would go down.”

Few of the economists surveyed by the FT said they expected US economic activity or the labour market to deteriorate substantially over the coming months. However they noted that movements in the dollar have tightened financial conditions and weighed on the country’s manufacturing sector.

“Two weeks ago chair Yellen indicated that the conditions the committee has set for lift-off were close to being met — a statement which was followed shortly after by a strong payroll report further supporting the case for a hike,” said Michael Feroli at JPMorgan. “While these developments may have sealed the deal for a move next week, we don’t think the FOMC wants to pre-commit to anything after that.”

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OPEC's failure to do anything about the global crude glut drove oil prices to six-year lows this week. With prices falling, equity markets were dragged lower by a hard-hit energy sector. Moreover, the long-prophesied high-yield debt meltdown may be underway, as a notable fund specializing in junk bonds froze investor holdings and said it would wind down, causing a major selloff in HYG. Meanwhile, the FOMC meets next week and Fed fund futures are still predicting am ~80% probability of a small rate increase. Nevertheless, US Treasury markets saw aggressive buying through week's end after digesting a fair amount of new supply. Waning risk appetite pushed the US 30- and 10-year yields back below their 200-day moving averages by Friday. For the week the DJIA lost 3.3%, S&P500 dropped 3.8%, and the Nasdaq fell 4.1%.

WTI crude prices fell nearly 10% this week, dropping below $36, within striking distance of the January 2009 low near $33/bbl. Brent slipped 12% to below $38, even closer to its December 2008 bottom around $37/bbl. The primary catalyst was OPEC's muddled and contentious summit last week, with no action taken to stem the glut. In a report out on Friday, the IEA warned the supply glut would last until late 2016. With oil marking six-year lows, the Canadian Dollar has hit 11-year lows against the greenback, with USD/CAD at 1.3700. The ruble has fallen to 70.4 to the dollar, pips away from the August low of 70.8, with real worries about the Russian economy setting in. 

Another big casualty has been shaky US high-yield debt markets. On Thursday evening, Third Avenue Management, a large mutual fund specializing in high-yield bonds, blocked investors from withdrawing funds, citing difficult trading conditions for its securities. The move highlights longstanding fears that too much money has piled into risky junk bonds. Third Avenue manages a total of $8 billion, and the remaining assets in the fund will be put into a liquidating trust and sold off gradually. The iShares HYG high-yield fund dropped 2% on Friday to four-year lows, extending the run lower that began in spring.

Press :

- FT : Asset managers pour billions into direct lending - http://on.ft.com/1P0kscS

- FT : Stone Lion halts redemptions from $400m credit fund - http://on.ft.com/1Riakzw

- FT : Irish regulator launches fund fee probe - http://on.ft.com/1IMMGIU

- FT : Brexit risk a chance for industry to engage in eurozone recovery http://on.ft.com/1P0sh2o

Macro :

- China Nov. Industrial Output Rises 6.2%; Est. 5.7%

- France’s Ratings Affirmed at AA by Fitch

-German Transport Ministry Plans Tighter Emission Controls: BamS

Keep an eye on :

- ADP FP : ADP Says Ryanair Has Possibility of Getting Slots at Paris CDG

- AIR FP : Cinven, OHB Said to Bid Jointly for Airbus Defense Unit: Reuters

- AZN LN : AstraZeneca May Buy Acerta Pharma for More Than $5b: WSJ

- BMPS IM : BTG Pactual Sold Stake in Banca Monte Paschi, Il Sole Reports

- CSGN VX : Credit Suisse Won’t Cut Bonuses by Up to 60%: Sonntagszeitung

- DLG GY : Dialog Acknowledges Atmel’s Receipt of Unsolicited Proposal

- FNC IM : Finmeccanica CEO Says No Intention to Sell Westland Unit, Finmecannica CEO says group has received no offer for AgustaWestland from Boeing

- GXI GY : Gerresheimer Considering More Acquisitions, Debt Reduction: BZ

- GPRO US : Fitbit v GoPro: faster, faster - FT - http://on.ft.com/1QmtuEb

- IHG LN : Accor & Kingdom could soon be back on hunt for big acquisitions, making IHG a prime target http://thetim.es/1Nq3mm8

- KUNN SW : Kuoni Hires Morgan Stanley to Explore Options, SZ Reports

- LHA GY : Lufthansa’s Swiss to Post 2nd Best Result in History: SamS

- MUV2 GY : Berkshire Cuts Munich Re Stake to 4.6% From 9.71%

- POG LN : Renova builds 20% stake in Petropavlovsk, fuelling takeover speculation - Sunday Times

- RNO FP : Nissan Happy With Outcome From Renault Board Meeting: Saikawa

- RYA LN : ADP Says Ryanair Has Possibility of Getting Slots at Paris CDG

- SPM IM : Saipem Completes EU4.7b Syndication of Senior Credit Lines

- SHP LN : Shire Said to Hold Talks With Baxalta That May Lead to Deal

- TIT IM : Telecom Italia Notes Vivendi Opinion on Saving Shares Plan

- VOW3 GY : VW Developing New Technology to Integrate Flat Batteries in Cars

- ZO1 GY : Zooplus CFO Sees Lower Margins Also in 2016: Euro am Sonntag