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Update June: Government bailout plan; BA pre-tax profits; Moody ‘coding error’

Gilt trip
The Bank of England announced its government bailout plan, worth £50bn, for the
beleagured UK banking sector. Banks can temporarily swap ‘high-quality’
mortgage-­backed securities for gilts in a swap lasting a year, but renewable up
to three years.

Tax benefits
The Treasury has created a multinational tax forum, staffed by board executives
from eight UK companies to discuss ways the tax system could provide longer-term
stability. Members include HSBC’s Douglas Flint, Glaxo’s Julian Heslop and BT’s
Hanif Lalani.

M&B goes REIT
Pubs chain Mitchells & Butlers will get more value out of its property
assets by implementing a real estate investment trust (REIT) structure “when
financial market conditions permit”, subject to regulatory clearance. The
company will now start reporting on a pro forma OpCo/PropCo basis.

BA profits soar
British Airways’ 2007-08 pre-tax profits rose by 45% to £883m despite the
Terminal 5 debacle, rising fuel costs and the credit crunch. However, chief
executive Willie Walsh turned down an annual bonus following the T5 flop.
Revenue was up 3.1% to £8.7m and the company said it expected that to rise by 4%
in the next financial year.

Turner FSA chairman?
Lord [Adair] Turner, chairman of the government’s climate change committee, is
said to be a front-runner for the chairman role at the Financial Services
Authority, which will become vacant in September when Sir Callum McCarthy
leaves. Lord Turner was previously chair of the government’s Pension Commission
and director-general of the CBI.

Moody blues
A Financial Times investigation has suggested that ratings agency
Moody’s incorrectly awarded triple-A ratings to debt products because of a bug
in its computer models. The FT said a coding error discovered in early
2007 meant ratings on debt products potentially worth billions of dollars were
up to four notches higher than they should have been.

TECHNICAL UPDATE
Auditing
The Financial Reporting Council has issued a consultation document that
considers the possibility of allowing outside capital in audit firms and whether
a change in the current auditor ownership rules would give rise to a conflict of
interests. The aim is to see whether it is possible to increase auditor choice
for larger companies.
www.frc.org.uk

SEC
The Securities and Exchange Commission says that public companies will soon have
to submit their financial reports using XBRL, or “interactive data”. The largest
500 companies will be required to use XBRL by spring 2009, with all others
required to do so by 2011. SEC chairman Christopher Cox said, “It would
transform financial disclosure from a 1930s form-based system to a truly 21st
century model that taps the power of technology for the benefit of investors.”

www.sec.gov

Financial reporting
The ‘true and fair’ concept underlying financial reporting is still relevant,
despite the introduction of IFRS and the Companies Act 2006, the Financial
Reporting Council says. Martin Moore QC prepared a legal opinion for the FRC
that confirms the “centrality” of the concept, which has never been defined by
statute.
www.frc.org.uk

Stock exchange
The London Stock Exchange is to provide investors with free equity research on
smaller quoted companies – those on Aim as well as smaller main market stocks.
The launch of the service, PSQ Analytics, coincides with a consultation to find
out how to improve liquidity in smaller stocks.
www.londonstockexchange.co.uk

Pensions
The National Association of Pension Funds has criticised the Pension Regulator’s
proposals to regard what appear to be low mortality projections as a trigger for
further scrutiny into such schemes. The NAPF says the move would force trustees
to adopt longer mortality assumptions, even when they are not relevant.
www.napf.co.uk

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