RBS Confirms Plan For £38bn 'Bad Bank'

By Mark Kleinman, City Editor

Royal Bank of Scotland (RBS) has confirmed plans to hive off nearly £40bn of toxic assets into a new division as part of an effort to accelerate its recovery that will be treated with scepticism by advocates of a more radical break-up.

Announcing a third-quarter pre-tax loss of £634m, RBS said £38bn of impaired loans would be placed into an 'internal bad bank' to be called RBS Capital Resolution Division.

The new arm of the bank is designed to provide a clearer distinction between the clean parts of the business and the tens of billions of pounds of legacy loans that critics say have hampered its ability to play a role in aiding the recovery of the UK economy.

Ross McEwan, RBS's new chief executive, conceded that quickening the run-off of these assets - with a target of up to £25bn of the £38bn being shed by the end of 2015 - would incur steeper losses.

The outcome of the four-month review commissioned by the Chancellor, George Osborne, and conducted by City firms BlackRock and Rothschild will see the rebranding of RBS's existing non-core wing, which has already offloaded hundreds of billions of pounds of toxic loans since the bank's £45.5bn bail-out by UK taxpayers in 2008.

Price correct at 09.43 GMT

Sky News exclusively revealed details of the internal bad bank plan and the broader restructuring of the bank, which is 81%-owned by taxpayers, last weekend.

Alongside the new bad bank, RBS will also bring forward the disposal of its US retail bank, Citizens; further shrink its investment banking business; resolve the issue of a dividend-blocking instrument that RBS will need to acquire from the Government; and target new cost-cutting measures that could lead to thousands more job cuts.

Mr Osborne said the reforms were part of a broader objective of "creating a banking system that works for Britain".

"Under this new direction RBS will deal decisively with the problems of the past by separating out the good from the bad, and putting the bad loans in a bad bank.

Stephen Hester left RBS amid his support for investment bank operations

"Our independent analysis shows that the bad bank should be an internal one, funded by RBS, rather than an external one funded by the taxpayer."

In a pointed remark highlighting divisions between the Treasury and Mr McEwan's predecessor, Stephen Hester, the Chancellor said that the new strategy was jointly-supported by RBS's management, the Government and the regulator.

The Bank of England said that it welcomed "the development of a more focused strategy for RBS and the commitments of the Board to specific actions that will bolster its capital position in the next three years".

"These actions should create a more resilient institution that is better able to support the real economy without any expectation of further Government support," it said.

"Given these developments, the Bank of England fully supports the conclusions of the review published today by HM Treasury."

While there was a consensus about the reforms within Government, Mr Osborne may have to brave a more hostile response from figures who wanted a more radical split of RBS.

Among their ranks were Lord Lawson, the former Chancellor; Lord  King, former Governor of the Bank of England; and Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards.

Alongside the new measures aimed at boosting RBS's recovery, a report was published condemning the bank's attitude to lending to small and medium-sized businesses (SMEs).

Mr McEwan pledged to implement the recommendations, and said RBS would target becoming the best SME bank in the UK.

In response to today's announcements, Shadow Chancellor Ed Balls said: "After the firesales of Royal Mail and Northern Rock, we will scrutinise George Osborne's plans for the future of RBS very carefully.

"As we argued when, earlier this year, the Chancellor flirted with the idea of a quick sale of RBS to a political timetable, the taxpayer interest must come first.

"The tests for these changes at RBS are whether they see the taxpayer ultimately get its money back and whether they actually boost business lending and radically transform this bank to put an end to business as usual.

"On the banking system more widely, business and the public are right to be concerned that lending to business is still falling while the radical reforms we need are being watered down.

"For example, he is still refusing to implement the Parliamentary Commission's call for a backstop power that would allow for full separation of all the banks, not just one or two, if ring-fencing proves ineffective and does not deliver the cultural change we need."

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Co-Op: US Hedge Funds Reassure Watchdog

By Mark Kleinman, City Editor

A group of American hedge funds is trying to reassure the Bank of England about their role in the restructuring of the Co-operative's troubled banking arm ahead of a formal deal to be announced on Monday.

Sky News has learnt that the LT2 Group, a coalition of funds which has forced Britain's most important mutual to cede majority ownership of its troubled lender, has held talks with regulators to reassure them that they do not intend to cross a crucial bank ownership threshold.

Under Prudential Regulation Authority (PRA) rules, any party owning more than 10% of the shares in a regulated bank must receive approval from the banking watchdog.

The stipulation is designed to prevent undue influence being exercised over important financial institutions by unregulated entities.

The rule also applies to a group of investors acting in concert, which hedge funds including Aurelius and Silver Point have been doing as they sought to win a better restructuring deal for bondholders from the Co-op Group.

Last week, it emerged that the bondholders would gain control of 70% of the Co-op Bank's shares as part of a debt-for-equity swap, leaving the Co-op Group still as the largest individual shareholder, although holding just a 30% stake.

Advisers to Aurelius, Silver Point and other bondholders have informed the PRA that none of them plans to individually hold a stake of 10% in the Co-op Bank, and that they should not be deemed to be acting collectively despite their months-long campaign to restructure the bank.

People close to the situation said on Friday the PRA was expected to be sympathetic to the hedge funds' argument, but that the issue was the subject of strict legal tests and would be closely monitored.

The funds are anxious to avoid having to be approved by the PRA because of the length of time the process can take.

The restructuring of the Co-op Bank will involve listing its shares on the London Stock Exchange next year, as it seeks to raise £1.5bn to fill a capital hole in its balance sheet.

Next Monday's financial restructuring is expected to be accompanied by the publication of a revised business plan for the Co-op Bank, which will entail significant cost cuts and job losses.

The news that the Co-op Bank would no longer be majority-owned by a mutual has sparked fury among many customers, prompting the bondholder group to acknowledge the lender's ethos.

"The Co-Operative Bank is unique for its ethics, mission and heritage which are an essential component of the Bank's differentiated approach," LT2 said in a statement last week.

"It is important to us that the Bank will maintain its unique characteristics and ethos.

"The Co-operative Group Ltd. will remain the Bank's largest shareholder by far and the Bank will benefit by this connection to the Co-operative movement."

Spokesmen for LT2 and the Co-op declined to comment.

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Water Bills: Crackdown On Bills Expected

Water bills may be "rolled back" after the government vowed to get tough on the rising cost of living.

David Cameron's spokesman indicated that an announcement on water bills would be made next week.

The spokesman said the Department for Environment, Food and Rural Affairs (Defra) would be making the announcement.

He said: "There will be some action next week from Defra with the intention of looking at water bills.

David Cameron says he wants to see household costs cut

"The Prime Minister takes household bills across the piece seriously and wants energy prices to be rolled back and wants various things done, whether it's council tax being frozen, the flex on rail fares being brought down, MoT costs being frozen, these sorts of measures to protect household bills."

He added: "The Prime Minister wants to see household costs across the piece being reduced as low as possible. The intention is to try to reduce the burdens on hard-pressed families."

Mr Cameron "wants regulators to look at the industry they regulate and make sure that they are robust and delivering what they need to deliver for consumers", the spokesman said.

Concerns have been raised that consumers are being ripped off

Labour leader Ed Miliband said the market needed to be scrutinised to ensure it was working for consumers.

At an event for regional newspaper journalists, Mr Miliband said: "I think we should be looking at all markets to make sure they are working properly and that includes the water industry."

The Western Morning News reported that the Labour leader said: "Some people will say this is an anti-business agenda. I think it is a pro-business agenda that you have got to reform markets that are not working properly.

"I think the water industry is something that should be scrutinised to make sure it is working properly and make sure it is working properly for the benefit of consumers, because I know concerns have been raised. I'm proud Labour is championing this agenda and I think it is consistent with believing what a market economy can do, and water is part of that."

MPs are set to consider the reform and infrastructure of the water industry on Tuesday next week after Tory Robert Buckland secured a backbench debate.

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Facebook Shares Plummet Despite Profit Boost

Facebook saw some $18bn (£11.2bn) wiped off its share price in minutes after a top exec admitted the social network had seen a drop in teenage users.

The company's stock soared by around 18% to $57.98 (£36.16) in after-hours trading following the announcement of better-than-expected financial results.

But the shares slid back to $48.44 (£30.20) - slightly below the day's closing price of $49.01 (£30.56) - during a conference call between Facebook management and market analysts.

Investors may have been spooked by comments from finance chief David Ebersman, who said the social network had noted a decrease in daily use among the important demographic of younger teenagers.

He said: "Our best analysis of youth engagement in the US reveals that usage of Facebook among US teens overall was stable."

But he added: "We did see a decrease in daily users specifically among younger teens."

Mr Ebersman said the trend was of "questionable statistical significance" but that he wanted to share it as the company was often asked about it.

The statement comes after a survey by financial firm Piper Jaffray found earlier this month that Twitter had overtaken Facebook as the preferred social network for teenagers.

Facebook's finance chief David Ebersman revealed the drop in teen users

Facebook has dropped from being the top choice with 44% of young users a year ago to just 23% in the latest survey.

The share price fluctuation masked an impressive set of Q3 figures that surpassed Wall Street's expectations.

The company's revenue grew 60% to £2.02bn (£1.26bn) as its share of the mobile ad market continued to grow.

The world's largest social network said it had earned $425m (£265m) in the third quarter - up from a loss of $59m (£37m) in the same period a year ago.

Adjusted earnings were $621m (£387m) in the last quarter - better than analysts expected. 

Facebook's advertising revenue was $1.8bn (£1.12bn), up 66% from a year ago, with mobile ads accounting for 49% of the company's total ad revenue during the quarter.

CEO Mark Zuckerberg said: "The strong results we achieved this quarter show that we're prepared for the next phase of our company, as we work to bring the next five billion people online and into the knowledge economy." 

Facebook went public in May 2012 at $38 per share but initially saw its share price tumble.

It took the stock more than a year to surpass the launch price as the company worked to prove that it could grow mobile advertising revenue at a time when an increasing number of its users were accessing it on mobile phones and tablet computers.

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House Prices Rise 1% But Are 7% Below Peak

House price growth accelerated in October but the average cost of a home is still 7% below the record level measured in 2007.

The latest Nationwide House Price Index charted a 1% increase over the month following a 0.9% increase in September - with London and the South East continuing to drive the growth.

Nationwide said it meant that national annual price growth rose to 5.8% from 5% the previous month, leaving the cost of the average property at £173,678.

Commenting on the figures, its chief economist Robert Gardner said: "The UK housing market appears to be following the more resilient upward trend evident in the wider economy in recent quarters.

"The ability and willingness of potential buyers to transact has been steadily increasing.

There are concerns of unsustainable price increases because of low supply

"The ability to buy has been supported by continued gains in employment and policy measures such as the Help to Buy and Funding for Lending schemes, which have improved the availability and lowered the cost of credit.

"Mortgage rates are close to all time lows. The willingness of potential buyers to step into the market has also been increasing. 

While employment has been rising steadily for some time, it is only in the last few quarters that consumer sentiment has improved markedly.

"House price growth has accelerated as buyer demand has picked up more quickly than the supply of new homes. The risk is that if demand continues to strengthen while the supply of property remains constrained affordability could become stretched.

"Indeed, average wages have continued to decline in real terms even though employment growth has been fairly robust in recent years.

"Nevertheless, while house price growth has picked up, at a national level prices remain around 7% below their 2007 peak. 

Moreover, typical mortgage servicing costs remain modest by historic standards thanks to the ultra-low level of interest rates. A typical mortgage payment for a first time buyer is currently equal to around 29% of take home pay, in line with the long term average," he said.

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Big Six To Be Forced To Make Switching Easier

By Anushka Asthana, Political Correspondent

The 'big six' energy companies will be forced to be more transparent about their profits and make it simpler for customers to switch providers, under plans for an annual competition check on the industry.

Energy Secretary Ed Davey will unveil plans for the yearly review later in the House of Commons.

He is expected to say the companies will be subject to rigorous checks in three key areas - competition, profit and customer engagement.

It follows a storm of controversy around energy prices after four of the big six companies raised prices by an average of 9.1%, causing customer bills to exceed £1,400 a year and leading to allegations of cartel behaviour.

The annual check is designed to drive up competition in the market, which is still heavily dominated by the big six.

Despite a number of new entrants to the market, British Gas, SSE, Powergen, EDF, E.ON and Scottish Power still provide gas and electricity to 99% of British homes.

The annual review will aim to crack down on practices seen as preventing new firms from entering the market.

Ed Davey will announce the move in his annual statement

One supposed method revealed earlier this week involved British Gas. The energy giant was said to have a dedicated team that contacted customers who had switched away and offered them lower rates to go back.

Stephen Fitzpatrick, managing director of Ovo Energy, made the claims at a select committee hearing in which companies faced MPs.

Sources told Sky News the review would also look at how to force companies to offer clearer information to customers who want to switch and to reduce the time it takes to change companies.

There are already plans to reduce the number of tariffs on offer so that customers can easily compare them.

And the review will be expected to push companies to be more transparent about their profits.

While companies say they only make margins of around 5% on their retail products, they enjoy much bigger percentages in power generation - and the profits made through trading are not disclosed.

The review will be carried out by three regulators - Ofgem, the Office of Fair Trading and the Competition Markets Authority.

A source said the plans were "very much about transparency and asking the (big six) to open their books".

Jonathan Reynolds, a shadow energy minister for Labour, said the problem was that the regulators ought to be doing that work anyway.

He argued that we know what the problem is - we just need to fix it.

"Hard-pressed energy customers struggling with the cost of living need action now, not the promise of another review in future by the same regulator that has let the energy companies get away with ripping people off," he said.

"Nothing less than a price freeze will do, because this is the only way we can deal with the energy companies overcharging."

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Pensions: 'Rip-Off' Charges Targeted By Govt

Plans to stop "rip-off" pension charges could see people getting an extra £100,000 in their retirement savings pot.

The Government is to unveil plans that could include a ban on all charges above 0.75% a year as it rolls out landmark reforms to automatically place people into workplace pensions.

The industry has been working to improve transparency and the average charge on new pension schemes set up in 2012 is around 0.51%.

But the Office of Fair Trading (OFT) estimates there are more than 186,000 pension pots with £2.65bn worth of assets which are subject to an annual charge of above 1%.

Small variations in charges can make huge differences over time to the eventual size of the pension pot that someone ends up with.

The Government said that someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1% charge and over £230,000 with a 1.5% charge.

A pension saver with a 0.75% annual charge on their pension pot could eventually end up £100,000 better off than if they had been charged a rate of 1.5%, the Government said.

Pensions Minister Steve Webb said: "The Government believes that enough is enough on charges.

"People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges."

Other options for caps being considered by the Government include a higher charge cap of 1% and a "two-tier" cap.

The two-tier cap would involve a standard cap of 0.75% and as well as a higher cap of 1% if employers explain to the Pensions Regulator why their scheme charges more than 0.75%.

Any final cap could lie somewhere between the two levels suggested, depending on the evidence received.

The Government wants to hear from the industry and the public on how it can best design a charging cap that can protect people's savings before putting its plans in place next year.

Otto Thoresen, director general of the Association of British Insurers (ABI), said: "The industry is committed to making pension reform a success and of course will engage fully with this consultation."

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Supermarkets Announce New Petrol Price Cuts

By David Crabtree, Midlands Correspondent

The cost of fuel is being slashed at pumps across the UK in the latest phase of a supermarket petrol price war.

It was sparked by Asda, which is cutting prices to its lowest this year. Sainsbury's,Tesco and Morrisons have acted quickly to announce reductions.

Asda has launched a national cap on prices, saying drivers filling up at its forecourts will pay no more than 126.7p a litre for petrol or 133.7p for diesel.

Sainsbury's says it is cutting prices by up to 3p - their cheapest for two-and-a-half years.

The cuts have been welcomed by drivers

Tesco will reduce prices by up to 2p. Morrisons will do the same "at the majority of its sites".

Quentin Wilson, from the campaign group FairFuel UK, said: "Don't get excited, everybody, because this will not stay. We will see it go up again.

"But at least now we have a much faster reflection of wholesale prices at the pump. We don't have to wait two or three or four weeks for the fuel to come down in price when we know it goes up in a heartbeat, so I'm pleased, FairFuel is pleased."

The AA has welcomed the move, saying it reflects a fall in the wholesale price of fuel, but the continued uncertainty over Libyan oil production continues to leave the market unpredictable.

An AA spokesman said: "The average price of petrol in the UK has hovered around the 132p a litre mark since mid-October, making 126.7p a very good price."

At Asda in Leamington Spa, motorists greeted the news with delight.

Susan Cooper, who drives 50 miles a day, said: "This will save me a lot of money. It is about time we had some better news with gas and electricity going up."

There are words of caution from campaigners that lower prices may not last

Another customer, Martin Cavanagh, said: "It has to be good news. I know oil and everything is a complicated commodity and that's why we get the price jumping around. Let's hope it goes low and stays low."

Oil analyst Richard Mallison said it was significant that retailers were passing on the fall in wholesale oil prices to consumers on the forecourt.

He told Sky News: "The biggest reason for supermarkets being able to slash prices at the pump has been the change in the dollar-to-pound exchange rate.

"The dollar's weakened, that's brought down the cost of oil and wholesale fuel and that's now being passed on."

But he warned that low prices may not last for long.

He said: "We've seen the UK recovery stronger than expected, we've seen the troubles with the US shutdown and debt ceiling - both of those effects might fade in terms of the exchange rate, which would then mean petrol prices starting to go up again."

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Barclays Profits Dive By 26% In Third Quarter

Barclays has confirmed a 26% fall in quarterly profits.

The third quarter brought in £1.39bn, amid higher spending to achieve its transformation objectives and lower earnings from its investment banking operations.

Profits over the first nine months of the year were down 20% to £4.97bn.

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Apple Earnings Drop For Third Quarter In Row

Apple's fourth-quarter earnings have fallen 9% as more people opt for the company's lower-priced iPhones and iPads.

It is the third consecutive quarter that its earnings have dropped compared with the previous year.

Apple said it had sold 33.8 million iPhones, 14.1 million iPads and 4.6 million Mac computers between July and September.

iPhones sales were up 26% on the same time last year, but the cheaper 5C model has helped lower the average sale price of the handset.

Quarterly revenue was still a massive $37.5bn (£23.2bn) however, giving earnings of $7.5bn (£4.3bn).

That compares with $36bn (£22.3bn) and $8.2bn (£5bn) for the same time last year.

"Wall Street didn't like these numbers - they weren't enough," Fox business correspondent Dennis Kneale told Sky News.

"They are (also) a little concerned about the current quarter's outlook and with profit margins and what is happening there."

Argos' tablet is one of a growing number of cheaper iPad alternatives

Kneale added: "Here's the thing bothering Wall Street, profit margins a year ago 40%, this quarter only 37%. That's a little scary for Apple."

The 'budget' iPhone 5C was released last month and is seen by experts as an attempt to gain greater market share in the Chinese market, where cheaper Android-based handsets dominate.

Apple also faces more competition in the tablet sector, particularly from an increasing number of budget devices.

In the UK, Tesco and Argos are the latest retailers to have entered the market.

However, Apple now heads into the lucrative Christmas period with an updated iPad range and is predicting revenues of between $55bn (£34bn) and $58bn (£36bn) the next time it reports.

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Energy Prices: MPs To Turn Up Heat On 'Big Six'

By Poppy Trowbridge, Business and Economics Correspondent

Executives from Britain's biggest power companies will appear before a panel of MPs today to justify their most recent round of price hikes.

British Gas, SSE, Scottish Power and Npower have raised household bills by an average 9.1% for this winter. E.ON and EDF are expected to follow in the coming weeks.

They all say mounting wholesale costs are partly to blame.

But data from the energy regulator Ofgem show those prices have only gone up by 1.7% over the past year and should only add £10 to a bill.

Mark Todd, co-founder of the EnergyHelpline website, told Sky News: "I can't see a reason a why an energy company could really say that wholesale gas and electricity price increases are the main reason for these hikes.

"They need to increase their profits, their own take is going up.

"They do have to pay these green levies, they are going up dramatically, and also the transmission costs are going up dramatically. Wholesale costs, no. But other costs, yes."

The Energy and Climate Change Committee will take evidence from Tony Cocker, the chief executive of E.ON, the boss of British Gas' Energy division, Ian Peters and representatives from SSE, Npower, EDF Energy and Co-operative Energy from 1pm.

MPs will grill bosses on the different pricing policies between energy suppliers, improving transparency of their profits and ask them to justify the most recent round of price hikes.

Andrew Wright, interim chief executive of Ofgem will also appear before MPs.

UK households pay some of the lowest energy tariffs in Europe.

Jillian Ambrose, from energy information provider Platts, said: "Gas prices have been going up.

"It is a global market at the end of the day and something as far removed as the Fukushima disaster has had a big impact on UK gas prices.

"Japan have shut reactors and they are more dependent on gas than ever and they are willing to pay for it. So in a global market the UK needs to compete and those prices have reflected that."

:: There is a special edition of Jeff Randall Live tonight looking at the energy crisis. Watch on Sky News from 7pm.

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Lloyds PPI Bill Tops £8bn But Profits Rise

Lloyds Banking Group has set aside another £750m to cover the costs of the payment protection insurance (PPI) scandal, taking its total provision past £8bn.

The part-nationalised lender confirmed the news - broken by Sky's City Editor Mark Kleinman on Monday night - when it announced its third quarter results. 

Its statutory profit before tax of £1.694bn for the nine months to September 30 reflected the additional PPI writedown and compared to a loss of £607m for the same period last year.

Antonio Horta-Osorio, the bank's chief executive, said of the performance: "The third quarter was a significant one for the Group.

We returned the TSB brand to the high street, launched a revitalised Lloyds Bank, and I am pleased that the progress we have made enabled the UK government to begin the process of returning the Group to full private ownership and getting taxpayer's money back at a profit.

These are key milestones for Lloyds Banking Group and UK banking," he said.

The continuing nature of the PPI scandal underlines how one of the banking sector's most profitable products in the years after 2000 has become a giant millstone around its neck.

The British Bankers' Association has been holding talks with the Financial Conduct Authority about the imposition of a time limit on PPI claims, although these discussions have so far been fruitless.

The rest of the major high street banks are likely to have to increase their own PPI provisions, with Barclays and Royal Bank of Scotland also reporting third-quarter results later this week.

In February, the Financial Times quoted one unnamed Lloyds shareholder as saying that it would review its investment in the bank if PPI costs continued to rise.

"If PPI costs rise further, then that could tip the balance in our decision on whether to hold or sell our shares in the company," they are reported to have said.

That sentiment has not held back the Lloyds share price despite the fact that its PPI bill has escalated further.

On Monday, the owner of Halifax saw its share price close at 79.62p, a near-doubling during the last 12 months.

As Sky News revealed at the weekend, Mr Horta-Osorio has a vested interest in seeing the shares remain above 73.6p until the second half of November. If they do, the performance over 30 consecutive trading days would crystallise a bonus that on paper is currently worth just under £2.5m.

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Airbus' Airline Appeal For Wider Plane Seats

Relief could be on the way for passengers crammed into narrow seats on planes.

Aircraft manufacturer Airbus is calling on the aviation industry to set a minimum seat width of 18 inches for long-haul aircraft.

The call comes after London-based research showed that sleep quality can improve substantially if seats are a little wider.

Airbus, whose planes' wings are made in the UK, already has an 18-inch minimum width in its long-haul economy cabins, with business and first-class passengers having wider seats.

The company said: "However, other manufacturers are eroding passenger comfort standards by going back to narrower seat widths from the 1950s in order to remain competitive."

Airbus released details of research conducted by Harley Street medical practice The London Sleep Centre.

Tests were done on a selection of passenger, which included monitoring brainwaves, and eye, abdominal, chest, hip and leg movement.

The tests revealed that a minimum seat width of 18 inches improved passenger sleep quality by 53% compared with the 1950s-style 17-inch standard.

Dr Irshaad Ebrahim, of The London Sleep Centre, said: "The difference was significant. All passengers experienced a deeper, less disturbed and longer night's sleep in the 18-inch seat."

Kevin Keniston, Airbus' head of passenger comfort, said: "If the aviation industry doesn't take a stand right now then we risk jeopardising passenger comfort into 2045 and beyond, especially if you take into account aircraft delivery timetables combined with expected years in service.

"Which means another generation of passengers will be consigned to seats which are based on outdated standards."

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HS2 Alternative 'Will Cause Years Of Gridlock'

By Anushka Asthana, Political Correspondent

Railway services between the north and south of England will be crippled by 14 years of weekend closures if HS2 is abandoned for an alternative, ministers will claim this week.

The warning will be part of a coalition "business case" for the high-speed rail link published on Tuesday in a bid to fight off critics of the increasingly controversial project.

It will paint a picture of chaos for commuters if other investments are chosen instead of HS2.

The closest alternative would require 2,770 weekend closures - equivalent to 144,000 hours - on the East Coast Mainline, Midland Mainline and West Coast Mainline, the report will say.

That will increase a typical journey from London to Leeds by two hours and 10 minutes to more than four-and-a-half hours overall.

Map of the HS2 route

The Government has drawn the evidence from a study by Network Rail and transport consultant Atkins. It also finds that houses and businesses would have to be demolished.

A Government source said: "We need to do something because our railways are nearly full but the alternative to HS2 is a patch and mend job that would cause 14 years of gridlock, hellish journeys and rail replacement buses.

"The three main routes to the north would be crippled and the economy would be damaged."

The strong language is a response to heavy criticism of HS2 - including from the Labour Party which is no longer promising to support the project.

The party wants to introduce a "cancellation trigger" to the legislation, forcing the Government to reveal if total costs rise about £50bn. Ministers may support the amendment.

Labour's role is seen as key after David Cameron admitted that "multi-year, multi-parliament infrastructure projects … can't go ahead without all-party support".

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Storm Causes Major Headache For Commuters

Transport services including trains, planes and ferries have been cancelled or are disrupted as a severe storm strikes the southern half of the UK.

Many operators have already announced amended timetables or cancellations ahead of expected hurricane-force winds and heavy rain.

Among the services that will be affected by the storm are:

Trains

:: Southern Railway has announced that it is "highly unlikely" it will run any services before at least 9am on Monday.

:: Gatwick Express services finished at around 1am and will not resume until at least 9am.

:: South West Trains has warned people not to travel at all on Monday and will be running a "significantly reduced timetable".

:: Southeastern Railway is expecting to run a reduced service and most routes will not be operating until after 9am. 

:: East Coast Trains will operate an amended timetable for Monday due to speed restrictions that will be in force south of York Station.

:: Greater Anglia Trains has announced that services will be suspended on Monday until 9am and no alternatives to trains will be provided.

:: First Capital Connect trains are not expected to run until after 9am.

:: London Overground services will not be operating until after 9am on Monday.

:: East Midlands Trains - no services into or out of London St Pancras until at least 10am. No services between Nottingham, Ely, Peterborough and Norwich until around 9am.

:: C2C trains suspended until at least 9am.

:: Eurostar cross-channel services suspended until at least 7am to allow inspection of high speed lines.

Planes

:: Heathrow airport has cut capacity for all airlines on Monday, including a 20% reduction between 6am and 11am.

About 130 flights have been cancelled and the airport recommends all passengers contact their airline.

The cancellations are a combination of arrivals and departures.

:: British Airways' Heathrow cancellations are currently all from its European and domestic schedule. Passengers can rebook or get a refund.

:: Gatwick, Stansted, Luton and Bristol airports have not yet announced any cancellations but are telling passengers to check with their airline before travelling to the airport.

Ferries

:: Brittany Ferries' services has announced cancellations between Plymouth and Roscoff; Poole and Cherbourg; Portsmouth and Bilbao.

Ferries also cancelled between Penzance and the Isles of Scilly.

Roads

:: The Highways Agency has issued a severe weather alert for high-sided vehicles, caravans, motorbikes and other vulnerable vehicles.

:: Both crossings over the Severn estuary have been closed.

:: Queen Elizabeth II Bridge, the southbound Dartford Crossing, is closed. However, the tunnels will remain open and operate a contraflow system so that traffic can cross the Thames in both directions.

:: The Sheppey Crossing bridge in Kent is currently closed due to high winds.

:: The A14 Orwell Bridge near Ipswich has been shut

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McDonald's To Drop Heinz After CEO Change

McDonald's has announced it will end a 40-year relationship with Heinz as the sauce company is now led by the former chief of rival Burger King.

"As a result of recent management changes at Heinz, we have decided to transition our business to other suppliers over time," McDonald's said in a statement.

"We have spoken to Heinz and plan to work together to ensure a smooth and orderly transition."

The switch will be more apparent outside the United States, as McDonald's only serves Heinz sauce in Pittsburgh and Minneapolis.

Heinz has had a 40-year-old relationship with McDonald's

Heinz is now run by Bernardo Hees, former head of Burger King, 

Sauce packages handed out at McDonald's restaurants in the United States often say only "fancy ketchup". Most in-store sauce dispensers are not branded.

The move by McDonald's could benefit Heinz rivals Hunt's, owned by ConAgra Foods Inc., and Del Monte.

Warren Buffett's Berkshire Hathaway and an investment fund affiliated with 3G Capital bought Heinz for $28bn (£17bn) in June and immediately named Hees CEO.

Burger King went public in June 2012, less than two years after it was privatised by 3G Capital Management LLC, which retains a stake in the fast-food chain.

Burger King has been a Heinz customer for "decades" and uses its products in roughly 80% of markets around the world, spokesman Miguel Piedra said.

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JPMorgan To Pay £3.2bn In Mortgage Settlement

JPMorgan has agreed to pay $5.1bn (£3.2bn) to resolve claims it misled mortgage lenders before the housing crash.

The deal settles a lawsuit brought by American regulators over the quality of mortgages sold to US loan giants Fannie Mae and Freddie Mac between 2005 and 2007.

The Federal Housing Finance Agency accused America's biggest bank of causing "billions of dollars" in losses to the two mortgage finance companies.

The two settlements - one of $4bn and another of $1.1bn - is less than half the amount JPMorgan is expected to pay for mortgage-related violations.

The $4bn fine relates to $33.8bn in residential mortgage-backed securities sold by JPMorgan to Fannie and Freddie between 2005 and 2007.

The remaining $1.1bn concerns claims JPMorgan made about single-family mortgages it sold Fannie and Freddie between 2000 and 2008.

JPMorgan CEO Jamie Dimon has been in talks with the US Justice Department

JPMorgan "falsely" told Freddie and Fannie the mortgages met the two agencies' standards for quality.

In reality, the assets were much lower quality than claimed. Many loans that were billed as safe later defaulted or were foreclosed.

The FHFA said JPMorgan's conduct "constitutes negligent misrepresentation, common law fraud and aiding and abetting fraud".

The securities were sold to Fannie and Freddie by JPMorgan and also by Bear Stearns and Washington Mutual, which were bought by the bank in 2008.

FHFA Acting Director Edward J DeMarco said: "This is a significant step as the government and JPMorgan Chase move to address outstanding mortgage-related issues."

JPMorgan is expected to pay a total of $13bn for mis-selling mortgage-backed securities in the run up to the 2008 financial crisis, say US reports.

A tentative deal has reportedly been reached between JPMorgan and the US Justice Department.

If the deal is finalised, it would be the biggest settlement of its kind ever paid by a US company.

Related Stories

JPMorgan Facing Record £8bn Fine: Reports

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Osborne To Stop Short Of Full RBS Break-Up

By By Mark Kleinman, City Editor

George Osborne will stop short of ordering a full break-up of Royal Bank of Scotland (RBS) following a review that will aim to redeploy billions of pounds of capital for lending into the British economy.

Sky News understands that the Chancellor and senior Treasury officials will next week finalise a blueprint for the future of RBS, in which UK taxpayers hold an 82% stake, which avoids the need for a formal vote by independent City shareholders.

The key recommendations of a four-month review led by Rothschild, the investment bank, and BlackRock, the world's largest asset manager, are understood to focus on "internal surgery" rather than a wholesale break-up of the RBS group.

They will include the creation of a more formal internal "bad bank", a further reduction in the size of RBS's investment banking operations, a more aggressive strategy to resolve the future of impaired loans, and a number of other asset sales.

An announcement about the outcome of the review, launched by the Chancellor in June, could be made as soon as next Friday, when RBS publishes its third-quarter results.

"He will want to present it as a break-up, but it won't quite be at the most radical end of the spectrum of options," said a source close to the situation.

Treasury and RBS officials cautioned that final decisions had not yet been taken and that the shape of the proposals could yet shift significantly.

The announcement of the restructuring is expected to be made by the bank itself, rather than Mr Osborne.

Under the currently-envisaged plans, the shake-up would involve in the region of £40bn of RBS's bad assets being held within a rebranded non-core asset division, or "bad bank". That figure is at the lower end of a range considered during the review, according to insiders, and roughly corresponds to the size of RBS's existing non-core unit.

It will not require the separation of those loans from RBS by injecting them into an independent taxpayer-owned vehicle, and so will not trigger a vote from which the Government would be excluded under stock market rules.

That will enable Mr Osborne to present decisions about RBS's future as a fait accompli - presuming that he has the agreement of RBS's negating the risk of an embarrassing defeat at the hands of institutional investors.

As Sky News revealed in June, many big RBS shareholders are opposed to a full break-up, arguing that it would be costly, time-consuming and further delay - possibly by years - the sale of the Government's shareholding in the bank.

The bad assets identified by the review largely comprise loans within RBS's Ulster Bank and property lending portfolios, and will be more aggressively run off in the coming months by the bank's executives.

The commitment to accelerate this process may trigger further writedowns to their value, with the bank raising additional capital by selling other assets.

Citizens, the US retail bank, is likely to be floated earlier than a previous target date of 2015, while the international arm of Coutts, the wealth manager owned by RBS, is also a candidate for sale.

It was unclear this weekend whether Rory Cullinan, the executive who has overseen the massive shrinkage of RBS's portfolio of bad assets during the five years since it was bailed out, will continue to run the unit.

One challenge facing Mr Osborne will be the scrutiny of Andrew Tyrie, the MP who chaired the Parliamentary Commission on Banking Standards. In its report earlier this year, it called for radical action to transform RBS into a bank that could support the UK economy.

The resolution of the dispute over the future of RBS, whose shares languish well below the level at which taxpayers injected £45.5bn of equity in the autumn of 2008, will bring relief to RBS managers tired of repeated conflicts between the Chancellor and Stephen Hester, who stepped down as RBS chief executive last month.

Mr Osborne said in June that he would only proceed with a major shake-up at RBS if it delivered clear benefits to taxpayers and the UK economy through increased lending capacity and appetite.

A Treasury official said on Saturday that the Chancellor had been keen to identify a "headline number" that would demonstrate that inflated capacity.

He added that the structural review would be linked to a separate piece of work led by Sir Andrew Large, former deputy governor of the Bank of England, which has been examining the flow of credit from RBS to small and medium-sized businesses (SMEs).

The views of UK Financial Investments (UKFI), which manages the taxpayer's stake in RBS, will also be important.

James Leigh-Pemberton, the investment banker who on Monday takes the helm of the Treasury agency, was asked by Mr Osborne last year to conduct a review of RBS's structure.

Mr Leigh-Pemberton argued in favour of a more radical break-up of RBS than the Chancellor is expected to favour.

Since becoming RBS's chief executive several weeks ago, Mr McEwan has been working with the management consultancy Bain & Co on a review of RBS's operations and an examination of core client services.

In a memo to staff earlier this month, he said that the location of RBS's bad assets was less important than the bank's need to focus on improving service to customers.

"The future of this company will not be about whether we operate in particular areas or where our problem assets sit," he wrote.

"The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans. And it will be about how well we live up to all our responsibilities, particularly those we have to the UK."

RBS and the Treasury declined to comment.

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