Co-op Bank Taps Funds Over £6bn Optimum Sale

By Mark Kleinman, City Editor

The‎ troubled Co-operative Bank has approached some of the world's biggest distressed investment funds about a sale of billions of pounds of British mortgages as part of its revival plan.

Sky News‎ has learnt that advisers to the Co-op Bank have held talks with funds including Apollo Management, Blackstone and CarVal about potential deals for parcels of the £6.6bn Optimum portfolio.

The ‎talks with prospective investors are ongoing and are likely to result in a series of transactions involving different structures for the assets, which the banking regulator has ordered the Co-op Bank to sell.

A number of other unidentified parties have also held talks with the Co-op Bank about buying parts of Optimum, which the lender adoped after its merger with the Britannia Building Society in 2009.‎

The ‎Optimum assets were partly responsible for the Co-op Bank being the only one of eight big lenders to fail stress tests set by the Bank of England in December.

News of the talks with potential buyers of Optimum's assets comes just days before the formerly mutually owned lender releases its annual results for 2014.

Sky News revealed last month that the chief executive of the Co-operative Bank was in talks about extending his contract amid continuing pressure from regulators for management continuity at the top of the company.

Sources said that Niall Booker, who took over in 2013 as the bank faced the threat of collapse, is likely to sign a rolling six-month contract to take him beyond his existing deal, which expires in June.

An announcement about his position is expected to be made either before or alongside the results, which are likely to be published next week.

Mr Booker, a former head of HSBC's North American operations, is understood to have had a difficult relationship with some of the bondholders who became major Co-op Bank investors as part of its rescue restructuring just over a year ago.

As a consequence of its stress test failure, the Co-op Bank postponed a vote on incentive awards for Mr Booker and senior colleagues because the proposals "include measures which may no longer be appropriate".

There have been no subsequent disclosures about revised terms for those payouts, although details may emerge alongside or soon after the results.

Some of the US hedge funds which now control a majority of the Co-op Bank's equity have pressed for Mr Booker to work to restructure the organisation more aggressively, insiders say.

At the time of the stress test failure, Mr Booker said: "We have achieved the target of building our capital base and the actions we have taken during the first year of our business plan have made the Bank more secure for the benefit of all stakeholders.

"Our key ratios around capital, liquidity and leverage at the present time are significantly strengthened, we're ahead of schedule in the disposal of Non-core assets and the stability of our core franchise is improving.

"However, given we are in the early stage of our plan, the original capital deficit and the nature of our assets, it is no surprise that we have not met the severe stress test hurdle."

The Co-op Bank was plunged into financial chaos even as it attempted to pursue a takeover of 632 Lloyds Banking Group branches.

Its former chairman, Paul Flowers, brought the bank into disrepute when his drug-taking and sexual activities were exposed by a tabloid newspaper, while his financial competence was questioned by MPs after he failed to correctly state the size of the Co-op Bank's balance sheet.

A spokesman for the Co-op Bank declined to comment.

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The Budget: What To Expect From Osborne

If you're expecting the forthcoming Budget to make a big difference to your pockets, you may well end up a little disappointed.

Pre-election Budgets tend to be short on measures and long on promises. After all, if there is a new Government elected in May, it will almost certainly table an emergency Budget to implement its own plans.

Often pre-election Budgets serve as a quasi-manifesto, providing a set of fiscal measures you might be able to expect if the governing party gets re-elected.

However, this time around, the Government is, of course, a coalition, and given neither party wants to pre-commit to another term of joint government, the document itself will probably be quite vague about what comes after 2015.

That said, there are certainly areas where we are expecting some movement. There may well be another increase in the tax-free allowance and some anti-tax avoidance measures to clamp down on companies like Starbucks and Google, who have been accused of shifting profits around the world to cut their tax bills.

Video: The Sky News Budget Rap Battle

If previous Budgets are anything to go by, the Chancellor may freeze or cut duty on beer prices (as compared to his predecessor but one, Gordon Brown, who preferred to ease duties on Scotch).

Moreover, the Chancellor has a little more money than expected left in his accounts. Thanks to weaker inflation and lower oil prices, the budget deficit this year may be as much as £5bn smaller than expected.

The question is whether Mr Osborne uses that money to pay off the national debt or to provide extra tax cuts (or, less likely, spending rises).

Certainly, an instant eye-catching tax cut would be an excellent pre-election boost for the Conservatives.

Finally, there's the question of whether the Chancellor will ease up on his austerity plans after the election.

At present, Mr Osborne is targeting a whopping £23.1bn surplus in 2019/20 - far bigger than is necessary even based on his fiscal targets (which just aspire to eliminate the deficit,  not to pull it into surplus).

That ambition will involve swingeing spending cuts, reducing the size of the state to the lowest level since the 1930s.

Those 1930s headlines were deeply unhelpful for the Tories following the Autumn Statement in December, so the Chancellor may well want to scale back the ambition of the spending cuts. Particularly since these are such long-term forecasts that no-one seriously expects them to be met with great accuracy.

Finally, although expectations are low, it would be odd for the Chancellor not to attempt to pluck some kind of rabbit out of his fiscal hat. That's what he's tended to do in the past - can he really resist the temptation so close to an election?

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Aston Martin Revs Up For £150m Share Sale

By Mark Kleinman, City Editor

The luxury car-maker Aston Martin is finalising plans to raise £150m from shareholders‎ to fund an expansion aimed at returning it to profitability within three years.

Sky News understands that Aston Martin has received commitments from Investment Dar, a Kuwaiti entity, and Investindustrial, an Italian fund, to provide £50m between them to purchase new ordinary shares.

A further £50m will come from Investindustrial to buy preference shares, while Investment Dar is also being asked to commit an identical sum to that part of the deal.

‎Aston Martin, best-known for supplying cars used in the James Bond film franchise, is keen to wrap up the fundraising in the coming weeks but is not in urgent need of the cash, according to people close to the company.

The premium car marque's new chief executive, Andy Palmer, ‎is working to change the fortunes of the loss-making company, which has seen a steady decline in sales.

Once part of Ford's Premier Automotive Group, the company saw sales slide from 7300 in 2007 to around 4000 last year.

Last month, Standard & Poor's, the credit rating agency, downgraded Aston Martin to B-, a reflection of its belief that the company would "show continued substantial negative free operating cashflow in 2015 and 2016, due to sizeable capital expenditure".

At the Geneva Motor Show this month, Aston Martin launched the DBX, an all-electric crossover model aimed at competing aggressively with Bentley.

Mr Palmer said ‎in an interview this month that Aston Martin's status in the automotive industry was as "a standalone company, but with a benevolent sugar daddy".

Aston Martin had considered raising funds in the form of new debt but has decided to focus on an equity issue, sources said.

An Aston Martin spokeswoman declined to comment on the details of its fundraising.

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Labour's Pledge To Force Big Six To Cut Bills

Energy companies could be forced to cut their bills by the end of the year if Labour wins the General Election in May.

Labour leader Ed Miliband is expected to announce later that one of his first acts in government would be to push through a bill giving energy regulator Ofgem more powers to force the so-called Big Six energy firms to reduce prices as well as freeze them. 

He will say the measure is necessary as the Big Six - EDF, npower, E.ON, British Gas, Scottish Power and SSE - have failed to pass on falls in wholesale energy prices to the consumer.

It is estimated gas and electricity bills could be cut by up to 10% this year, saving the average family around £100.

Ahead of his party's spring conference in Birmingham, Mr Miliband will say: "The costs of energy are tumbling down, not because of anything the Government or the Big Six energy firms have done, but because of global changes in oil and gas supply.

Video: Your Energy Cost Explained

"The cost of energy to the Big Six firms fell by 20%, but the sky-high prices that families pay have only fallen by a fraction of that.

"Gas bills have declined by between 1% and 5%. Electricity bills haven't fallen at all.

"What better evidence do we need of the chronic over-charging, the broken market and the rip-offs being faced by millions of families and businesses across Britain?

"We will pass a law to ensure falling costs are passed on to the consumer this winter; a law giving the regulator a legal duty to ensure fair prices this winter; a law giving the regulator the power to cut prices and keep homes warmer this winter."

Video: Energy Bills: What We're Paying

Mr Miliband originally promised a 20-month price freeze in his speech to the Labour Party conference in 2013 at a time of rising prices.

Energy Minister Matthew Hancock dismissed the plan, saying that if Labour had stuck by their original announcement of a price freeze, charges for the consumer would be even higher.

"This is now the sixth version of a chaotic Labour energy policy that would have put up families' bills by £100 and could do the same again - their record at setting prices has been a disaster," he said.

"This incompetence is exactly why Ed Miliband isn't up to the job.

Video: Energy Firms Fail On Cuts Promises

"With the cheapest tariff now more than £100 less than when Ed Miliband was calling for a price freeze, it would have meant people worse off.

"Now it's the main barrier to bills falling further."

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German Bank Pays $1.45bn Sanctions Settlement

US authorities have announced a $1.45bn (£975m) deal with Commerzbank to settle several charges, including the violation of US sanctions against Iran.

The total penalty, announced last night, is close to the settlement agreed by HSBC on similar allegations in 2012.

Commerzbank, which avoids criminal prosecution by the US Justice Department and the New York City district attorney's office under the agreements, was found to have broken sanctions against Iran, Sudan, Burma and Cuba.

Assistant US attorney general Leslie Caldwell said the bank "concealed hundreds of millions of dollars in transactions prohibited by US sanctions laws on behalf of Iranian and Sudanese businesses".

She said Commerzbank did so "even though managers inside the bank raised red flags about its sanctions-violating practices",

The bank admitted the facilitation of money laundering as a result of its activities.

Regulators have put big banks under greater scrutiny since the financial crisis for moving funds through the US financial system from international criminals and on behalf of nations under US sanctions.

Since 2009, Credit Suisse, Barclays, Lloyds, and ING have all paid big settlements related to allegations that they moved money for individuals or companies on the US sanctions list.

Commerzbank agreed to accept responsibility under its settlement and terminate a number of employees.

The Frankfurt-based bank said in a statement that it had taken steps in recent years to correct the problems and was increasing its staff  to boost compliance.

Chief executive Martin Blessing said: "We take these violations very seriously and deeply regret the actions that led to today's announcements.

"We have made, and will continue to make, changes to our systems, training and personnel to address the deficiencies identified by US and New York authorities."

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Pub Chain Sees 'Supermarket Profit Pressure'

JD Wetherspoon has blamed supermarket pricing and a bigger wage bill for a fall in operating profits.

The pub chain reported profits of £55.1m for the 16 weeks to 25 January - a drop of 1.1% - despite revenues rising 9% and like-for-like sales growing 4.5%.

Its chairman Tim Martin, who has long campaigned for a level playing field on tax with supermarkets, said: "The first half of the financial year resulted in a reasonable sales performance and free cash flow, although our profit was under pressure from areas which included increased competition from supermarkets and increased pay and bonuses for pub staff.

"As previously highlighted, the biggest danger to the pub industry is the continuing tax disparity between supermarkets and pubs.

"Thanks mainly to the work of Jacques Borel's VAT Club, there is a growing realisation among politicians, the media and the public that pubs are overtaxed and that a level tax playing field will create more jobs and taxes for the country".

Wetherspoon, which last year announced plans to create 15,000 new jobs over five years, has blamed tax rates for hampering its expansion plans.

It argues the greatest disparity is in VAT, as supermarkets do not pay it on food but pubs and cafes are hit with a 20% rate.

Wetherspoon has suggested this allows supermarkets to "subsidise their alcoholic drinks".

The Chancellor, who has cancelled the beer duty escalator, may use the Budget next week to go further.

It was claimed earlier this year that George Osborne's two previous cuts to beer duty had helped annual beer sales rise for the first time in a decade.

The company said it was looking to the breakfast trade to help achieve further growth.

It said it had successfully established a strong coffee and breakfast trade in recent years, selling approximately 50 million coffees and teas per year alongside about 24 million breakfasts.

JD Wetherspoon said: "We are increasing our efforts in this area by introducing more competitive prices from Wednesday 18 March.

"We are also introducing more competitive prices for breakfasts. Our aim is to triple coffee and breakfast sales over the next 18 months".

The company said it was introducing several drinks offers, reflecting greater supermarket competition, from the same date.

It warned: "Marketing and labour costs may be higher than anticipated in the second half, as a result of the coffee and breakfast campaigns.

"The second half of the last financial year was strong, which will make it difficult to improve on that performance in the current year, although we expect a reasonable outcome for the full financial year, even so".

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Greece Threatens German Asset Seizure Over War

The Greek justice minister has announced it may seize German state-owned property to compensate victims of a Nazi massacre more than 70 years ago.

"I'm ready to sign (the decision)," Nikos Paraskevopoulos said.

"The prime minister is aware of the views I have on the issue."

The alleged plan is to confiscate German-owned assets to compensate relatives of around 214 Greeks civilians killed in the village of Distomo by the SS in 1944.

The comments from Mr Paraskevopoulos come amid rapidly rising tension between Athens and Berlin over the renegotiation of its €240bn (£169bn) bailout.

The German government earlier accused Greece of raising WWII reparations as a diversionary tactic from its current bailout woes.

Greek Prime Minister Alexis Tsipras claimed Berlin was using legal tricks to avoid paying compensation for the Nazi occupation.

But spokesmen for Germany's political and economic leadership dismissed the claim.

The Greek leadership is under pressure over its bailout commitments

"It is our firm belief that questions of reparations and compensation have been legally and politically resolved," said Steffen Seibert who represents German Chancellor Angela Merkel.

"We should concentrate on current issues and, hopefully what will be a good future."

Video: Greece Clashes: Syriza Backlash

A spokesman for the German finance ministry added that there was no reason to hold talks with the Greek government about reparations.

He said they would be a distraction from the serious financial issues facing Greece.

Greece's anti-austerity government, and governments before it, have previously raised complaints of war reparations.

Video: Does Germany Trust Greece?

Last month Mr Tsipras said it was a "moral obligation" to demand compensation.

He said Greece was obliged to make the call on behalf of "our people, to history, to all European peoples who fought and gave their blood against Nazism".

Anger has long been aimed at Germany over policies that led to its debt mountain and there are annual celebrations in honour of the country's defiance against the Nazi occupation.

Video: Tsipras: We Won Battle, Not The War

Germany has said the issue was resolved as part of German reunification in 1990, and previous payments in 1960.

Greece is under growing pressure to open its books fully to bailout representatives in Athens and Brussels, amid fears it may run out of money within weeks.

Video: Greek Rescue Package Explained

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Shawbrook Joins Start-Up Banks' Race To Float

By Mark Kleinman, City Editor

A challenger bank chaired by the former head of Royal Bank of Scotland (RBS) will announce plans for a flotation on Thursday that the City believes could value it at almost £1bn.

Sky News has learnt that Shawbrook, which is majority-owned by ‎funds previously linked to RBS, will issue an announcement that will mean its shares are likely to begin trading with the General Election campaign in full swing.

Shawbrook was set up in 2011 to exploit the decline in asset finance and commercial mortgage lending to  small and medium-sized companies (SMEs) by the big high street banks.

It is chaired by Sir George Mathewson, a stalwart of the British banking industry who led RBS before handing over the reins to Fred Goodwin.

Sky News understands that ‎Sir George, who is 75, will steer Shawbrook through its initial public offering but will step down once a suitable successor has been identified.

Shawbrook is expected to seek to raise approximately‎ £90m from the sale of new shares, while some of the existing investors, including Pollen Street Capital, a fund formerly backed by RBS, are likely to sell part of their holdings.

The intention to float announcement issued by Shawbrook will come just three days after shares in rival Aldermore began trading in London.

Aldermore‎'s shares performed strongly on their debut, underlining the appetite among investors for shares in well-run banks without legacy issues and offering an attractive return on equity.

Shawbrook is expected to promote a similar narrative in its discussions with potential investors, pointing to customer loan growth in 2014 of 70% to £2.3bn and pre-tax profit trebling to more than £50m.

A string of other start-up banks have begun to emerge in the years since the financial crash, including Metro Bank and OakNorth, which this week announced that Lord Turner, the former chairman of the Financial Services Authority, would join its board.

Meanwhile, Lord McFall, the previous chairman of the Treasury Select Committee, has joined Atom Bank, a digital-only venture, as a director.

Further measures to promote competition in banking are expected to be announced next week in George Osborne's final Budget before the Election‎.

The Competition and Markets Authority is due to conclude an inquiry into the personal current accounts and SME banking markets later this year.

The perception that challenger banks will be assisted by Government policy ‎whatever the outcome of May's Election is one factor in Shawbrook's decision to proceed with its listing now, an insider said.

Shawbrook declined to comment on its IPO plans on Wednesday.

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Morrisons Records £792m Loss In Last Year

Struggling supermarket chain Morrisons has reported a deeper loss of £792m for its last financial year.

The figure - for the 12 months to 1 February - followed a loss before tax of £176m in 2013/14.

The chain, among the 'big four' battling each other and hard discounters for business in a fierce price war, said its like-for-like sales excluding fuel and VAT fell 5.9% over the period - double the rate of the previous year.

Underlying profits - covering day-to-day trading - were 52% lower at £345m, with revenues down 4.9% to £16.8bn.

Its first year of online sales delivered revenues of £200m.

The overall loss can be partly explained by a £1.3bn writedown on the value of its property - a decision it blamed on market conditions.

The supermarket chain axed its chief executive Dalton Philips following a poor trading performance over the crucial Christmas season.

Morrisons confirmed his replacement, ex-Tesco executive David Potts, would start work next Monday and it was "pausing" the expansion of its convenience M store offering - a sales platform it was late to develop.

Andrew Higginson, the Morrisons chairman, said: "Last year's trading environment was tough, and we don't expect any change this year.

"However, Morrisons is a strong, distinctive business - we own most of our supermarkets, have strong cash flow, and are famous with customers for great quality fresh food at low prices. This gives us a good platform.

"David Potts joins as chief executive next week. Under his leadership, we will focus on building trading momentum and being more like the Morrisons our customers expect.

"We will invest more into the proposition and put customers at the heart of everything we do. We will listen and respond to our customers, and work hard every day to improve the shopping trip.

"Success measures will be simple - more customers buying more from us. More customers means more volume growth which, ultimately, will lead to better like-for-like, profitability and shareholder returns."

Morrisons said it opened 11 new supermarkets and 57 M locals in the period but also closed six under-performing M locals.

It announced a proposal to close ten smaller supermarkets in 2015 and said it also intended to shut 23 more M Local stores.

More follows...

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Car Makers Attack 'Anti-Diesel' Campaign

By Gerard Tubb, Sky News Correspondent

A growing campaign to blame the drivers of diesel cars for dangerous air pollution has been attacked by motor manufacturers.

Emissions from diesel engines, including particulates and nitrogen oxides, have been linked to heart disease, cancer and asthma, while air pollution is said to kill 29,000 people a year in the UK.

After decades of tax incentives in favour of diesel vehicles, some drivers are now facing penalties for choosing diesel cars that cost less to tax but do more damage to air quality.

London's Mayor Boris Johnson has proposed adding £10 to the daily congestion charge for diesel cars, while Islington residents will soon have to pay an extra £96 for a diesel parking permit.

The Society of Motor Manufacturers and Traders (SMMT) has been stung into launching a campaign to try to persuade motorists to keep buying diesel cars.

Diesel users could face a £10 rise in the London congestion charge

Mike Hawes, SMMT chief executive, said: "Today's diesel engines are the cleanest ever, and the culmination of billions of pounds of investment by manufacturers to improve air quality.

"We need to avoid penalising one vehicle technology over another and instead encourage the uptake of the latest vehicle technology by consumers."

More than one in three cars on the road is now powered by diesel, up from less than one in 10 in 1994.

The popularity of diesel is the result of favourable vehicle tax rates introduced by the government in 2001 to reduce carbon dioxide levels from petrol engines.

Last year, the World Health Organisation warned air quality in most cities that monitor outdoor air pollution failed to meet safe levels, with people at risk of respiratory disease and other health problems.

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£1bn Printer Falls Like Domino To Japan Bid

By Mark Kleinman, City Editor

A FTSE-250 printing technology company will be the latest British corporate name to fall prey to a foreign rival when it unveils a takeover deal worth close to £1bn.

Sky News has learnt that the board of Domino Printing Sciences has reached a deal with a‎ major Japanese company that could spark an international bidding war.

Statements could be made to the London and Tokyo stock exchanges as soon as Wednesday, they said.

The identity of the Japanese predator could not be verified on Tuesday, although it is understood not to be any of Canon, Panasonic, Ricoh‎ or Sony - four of the biggest players in Japan's consumer electronics industry.

City sources said that advisers at Citi, the Wall Street bank, were working for the mystery bidder, and added that Domino had also held discussions with a number of US-based competitors in recent months.

One or more of these companies could yet lodge a counter-bid in an effort to gatecrash the agreed deal, they said.

Domino produces printers with secure inks, and serves multinational customers around the world.

Employing 2300 people, the company has operations in the UK, China, Germany, India, Sweden and the US.

If completed by its Japanese suitor, a takeover would be the latest in a string of major corporate deals involving British businesses being acquired by peers from Japan.

Gallaher‎, the tobacco manufacturer, and Aegis, the media-buying agency, are among the UK companies which have succumbed to multibillion pound advances from Japanese rivals in recent times.

A bid for Domino would ‎be one of the largest foreign takeover offers launched since revisions to the Takeover Code were introduced to provide additional safeguards for British manufacturing and research and development.

Shares in Domino fell by 1.1% on Tuesday to close at 721p, giving the company a market capitalisation of just over £821m.

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Pound Soars Amid Latest 'Greek Drama'

Fresh uncertainty over Greece has prompted a warning from the Chancellor and helped push the pound to a seven-year high of €1.40.

Sterling is now at levels not seen since the autumn of 2007, meaning Britons travelling abroad will get more for their money - around €1.38 at tourist exchange rates.

But Chancellor George Osborne remains focussed on resolving the deadlock over Greece, tweeting: "Just had bilateral meeting with Greek finance minister, urging them and eurozone to find solution.

"Unfortunately this Greek drama isn't over," he wrote.

Greek finance minister Yanis Varoufakis was told by his fellow eurozone finance ministers on Monday that time was running out and he must urgently put forward concrete proposals if the country wants to secure rescue funds agreed under its bailout extension.

Athens got a lifeline last month when ministers agreed a four-month deal on extending its current EU-IMF bailout, subject to the reforms being agreed.

The next payout of €7bn (£5bn) is due at the end of April.

Greece may have to leave the currency union if no reform programme can be ratified.

Mr Varoufakis has faced ridicule in Brussels and back home for some of his proposals, including the use of tourists to spot tax cheats.

His tough negotiating style has also irritated creditors, who have signalled their patience is wearing thin.

Greece has warned of a possible referendum if its plans are rejected.

The new radical left-wing government has pledged to streamline bureaucracy and tackle smuggling but its blueprint has been slammed as lacking detail, and especially figures.

Jeroen Dijsselbloem, head of the Eurogroup, said on Monday: "We have lost over two weeks in which very little progress has been made - we have to stop wasting time and start talks seriously."

Mr Dijsselbloem, who is also the Dutch finance minister, added: "The extension (of the Greek bailout) is only for four months and the clock is ticking."

The deadlock, combined with the effects of the eurozone's new QE programme, pushed the euro on Tuesday to levels not seen for years.

The FTSE 100 suffered however, having fallen more than 1.5% by Tuesday lunchtime.

It was pegged back by Prudential after the insurer said its chief executive was leaving for Credit Suisse.

A fall in energy stocks on weaker oil prices also weighed on the market.

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Prudential Boss Thiam To Join Credit Suisse

Prudential has confirmed chief executive Tidjane Thiam is to leave the company to join Credit Suisse later this year.

It made the announcement hours after Sky News reported that the head of the insurer's US business, Mike Wells, had already been picked to succeed Mr Thiam.

The company chose not to confirm that appointment in its statement.

It said: "Prudential plc today announces that Tidjane Thiam, group chief executive, has informed the Board of his intention to step down this year from his role as CEO and from the Board.

"Mr Thiam has agreed to join Credit Suisse as CEO".

At the same time, the Swiss-based financial services group confirmed its chief executive Brady Dougan was to go.

The change of chief executive at the Pru will surprise the City, which has enthused over Mr Thiam's leadership of the business since its recovery from one of the most disastrous takeover attempts in recent British corporate history.

In 2010, the Pru attempted to buy AIA, a major Asian insurer, in a deal worth $35bn, but the deal was thwarted by objections from shareholders and regulators.

The defeat left Mr Thiam dismayed, and his sense of injustice was compounded when the then Financial Services Authority fined the company and censured him for failing to keep it properly informed about the AIA plans.

Since the aborted move for AIA, which triggered the departure of the Pru's chairman, Harvey McGrath, the company has rebuilt relations with shareholders and seen its value soar amid strong performances across its business.

Mr Wells' appointment, if ratified by the Prudential Regulation Authority (PRA), will put him at the helm of a vast group with operations in the UK, US and Asia.

He would be the first American to run arguably the best-known of the major UK insurers, with a market capitalisation of almost £43bn.

Mr Wells would take over at a crucial time, with a new European regulatory framework and a rulebook imposed by the PRA to strengthen accountability among senior managers in the insurance sector.

Mr Wells is already a member of Prudential's board, which makes a decision by the PRA to reject his appointment as the group chief executive unlikely in the extreme.

He has held senior roles, lately as president and CEO of Jackson National Life Insurance, for 15 years.

Last year, Mr Wells was paid a total package of £11.7m, significantly more than that awarded to Mr Thiam.

It is unclear whether the Pru's chairman, Paul Manduca, considered external candidates to replace Mr Thiam, although other internal contenders are likely to have included Jackie Hunt, who runs the Pru in the UK and Europe, and Nic Nicandrou, the finance director.

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Virgin Atlantic Posts First Profit Since 2011

Sir Richard Branson has applauded staff at Virgin Atlantic after the airline posted its first annual profit since 2011.

The airline made £14.4m in 2014 following a pre-tax loss of £54m the previous year.

It credited strategic changes along with operational and cost efficiencies for achieving a target set in February 2013 to return to profitability within two years.

Sir Richard, who founded the airline and remains its president, said: "I can't think of a better way to complete our 30th birthday year than with a return to profit.

"The team at Virgin Atlantic has done a great job in turning around the airline and has the right strategy to take the business from strength to strength.

"Keeping our customers and our people at the heart of everything we do gives me great confidence in our future and I look forward to the next 30 years."

Chief executive Craig Kreeger said the results marked the conclusion of the recovery period, putting "firm foundations in place for the future".

Virgin group revenue was £2.9bn in 2014, with Virgin Holidays recording a profit for the year before tax and exceptional items of £5.7m, up £3m year on year.

It also marked a rise in passenger satisfaction scores despite more than 14% of its aircraft running behind schedule.

The carrier has begun a fleet regeneration programme towards more fuel-efficient aircraft and said its joint venture partnership with Delta, which began in January last year, helped it achieve 4.5 million ticket sales for joint venture services in 2014.

Among new routes to be launched this summer will be services between Manchester and Atlanta and London Heathrow and Detroit.

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Payday Loan Customers In Arrears Still Failed

The City regulator says payday loan customers in arrears are still being failed by companies despite new rules to improve how they are treated.

The Financial Conduct Authority (FCA) said it had found "serious non-compliance and unfair practices" in all firms that it reviewed since taking over regulation of the sector in April last year.

Its report identified poor outcomes for many customers and in some cases, "serious detriment and financial loss".

The watchdog said reviews of three firms, which it did not identify, revealed a backlog of letters and documentation, including from vulnerable customers who had fallen behind in repayments.

This documentation, the FCA said, included medical evidence and letters from debt advisors providing crucial information about why some customers were failing to pay.

Video: Nov 11: Payday Loan Charges Cap

Upon further investigation it was revealed that some of these customers were still being pursued by collection agents.

The regulator said firms are required to give customers "breathing space" from collections activity if they provide evidence that they are working with a debt advisor to manage their debts.

The FCA found further examples of actions that may have exacerbated already stressful situations, including repayment plans that were clearly unsustainable and subsequently failed and customers having to explain their situation multiple times as a result of poor record-keeping.

Where situations of non-compliance were uncovered, the FCA said it had intervened quickly to get firms to take specific steps to ensure the failings are not repeated in the future, including appropriate levels of redress.

It confirmed it had restricted the ability of a firm to do business until improvements were made.

The industry has been subjected to a series of new rules aimed at ensuring customers are treated fairly and the FCA said some progress had been made.

The results of its review were revealed just weeks after a 20-month investigation by the Competition and Markets Authority (CMA) said online payday lenders would be forced to publish details of their products on at least one price comparison website.

Video: Payday Comparison Site 'Interest'

The crackdown on payday lenders has sparked a wave of loan firm closures.

Wonga - Britain's best-known payday lender - confirmed in February it was cutting a third of its workforce as it shrank its operations in response to the new industry rules.

The company said it had to cut costs by £25m over two years but it committed to operate "fairly and responsibly".

Tracey McDermott, director of supervision at the FCA, said: "Our rules are designed to ensure loans are affordable; that customers who get into difficulty are treated fairly and that they are not pressurised into unaffordable and unsustainable repayment plans.

"The real test for these lenders will be FCA authorisation where they will have to demonstrate exactly how much progress they have made if they want to remain in the market".

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Defence Cuts Could Put 30,000 Jobs At Risk

By Alistair Bunkall, Defence Correspondent

Britain's Army could shrink to its smallest size in more than 250 years the UK has been warned.

A report published by the think tank Royal United Services Institute predicts the UK defence budget will fall to 1.95% of GDP - below the NATO minimum of 2%.

A 2010 review led to the army reducing in size to 82,000 personnel

It warned that up to 30,000 service personnel could go - with the Army likely to bear the heaviest cuts - leaving the armed forces with a combined strength of just 115,000 by the end of the decade.

In a worst case scenario the Ministry of Defence (MoD) might face a 10% cut over the next four years and would need an additional £3bn added to its budget after 2016 to remain at the same level of spending.

Video: Are Army Jobs At Risk?

Further increases would then be needed to keep pace with the growth of the economy.

The report's author Professor Malcolm Chalmers states: "By 2019/20 an extension of the commitment to the NATO target would require the MoD to be provided with an additional £5.9bn in annual spending, compared with current plans."

None of the major parties has guaranteed defence spending and the Foreign Secretary Philip Hammond wouldn't commit on the issue when pressed in an interview at the weekend. UKIP is the only party to suggest it will protect defence.

The US Army Chief of Staff recently warned Britain against making further cuts and Barack Obama has also spoken about the matter to David Cameron in private.

On Thursday MPs will debate defence spending in the House of Commons. It is becoming an increasingly important issue amongst backbench Conservative MPs who don't understand why the International Development budget is ring-fenced.

Video: Sept 2014: 'A Formidable Force'

Under the last security review in 2010 the Army reduced in size from 102,000 personnel to 82,000; the smallest since the Napoleonic wars.

Major equipment was also scrapped and not replaced, including the country's aircraft carriers and maritime patrol aircraft.

Those decisions have been exposed in recent months with the threat from Islamic State and growing aggression from Russia.

The paper's optimistic scenario envisages defence receiving an extra £4bn per annum from 2019/20, but recognises that would result in severe cuts for other departments or increased taxation.

The report states: "Even on the optimistic scenario, numbers of service personnel could fall from 145,000 to 130,000 by the end of the decade. Under the pessimistic scenario, they could fall to 115,000."

Video: Sept 2014: Danatt Criticises Cuts

It also warns than ships, fighter jets and armoured vehicles could be affected.

The report concludes: "In either scenario, the result will be a remarkably sharp reduction in the footprint of defence in UK society over a decade.

"Even in the optimistic scenario, defence's share of GDP will have fallen by a third, from 2.6% of GDP in 2010 to around 1.75% by 2019; and the MoD workforce (service and civilian) will have fallen by around 30% , from 265,740 to 184,000 by 2019."

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Tungsten Banking Arm Unveils Deposits Drive

By Mark Kleinman, City Editor

An electronic invoicing group headed by a prominent City financier will on Monday announce that it is to start taking deposits as it aims to become a leading challenger bank for corporate clients.

Sky News understands that Tungsten Corporation, which is headed by Edi Truell, the former chief executive of private equity group Duke Street Capital, will say that it is to offer annual interest of 1.5% on 35-day sterling deposits, rising to 1.8% for funds left with its Tungsten Bank arm for a year.

The deposit base will be used by Tungsten Bank to provide additional invoice financing as Mr Truell seeks to build the group into a business capable of processing as much as $1trn of invoices each year.

Invoice financing enables companies to maximise their cashflow by taking discounted early payment, an issue which has acquired significant political resonance amid a string of controversial announcements by blue-chip corporate names about the extension of supplier payment terms.

The benefit to big users of such services - Tungsten's clients include Aviva, Apple, GlaxoSmithKline and Nestle - is the potential for vast procurement cost-savings.

Tungsten Network says its customers include well over half of Fortune 500 companies, in addition to UK and US government bodies.

Mr Truell, who floated Tungsten on London's junior AIM stock market two years ago, believes the market is among several areas of the financial services industry which are ripe for a fresh approach.

He has said previously that Tungsten wants to disrupt financial markets which neglect the needs of businesses.

Last week, the group announced that it had secured a deal with the asset management giant Insight Investment Management to help finance the business.

A number of other so-called challenger banks are attempting to impose their own version of disruption on the provision of services to small and medium-sized companies (SMEs).

Shawbrook Bank, whose board members include the former Royal Bank of Scotland chief Sir George Mathewson, is close to confirming plans for a public flotation.

The launch of its deposit-taking operations comes after a difficult few weeks for Tungsten, which has seen its share price fall sharply and an increase in short-selling activity in the company's stock.

Mr Truell, nevertheless, has major ambitions for Tungsten, recently telling The Times: "We'd like to process $1 trillion worth of invoices a year. We'd like to provide finance of $100bn a year. And we'd like to save our clients $10bn a year."

A new wave of banks has been launched following a concerted push prompted by ministers to lower barriers for entry amid continued complaints about the treatment of SMEs by the largest high street lenders.

Tungsten declined to comment ahead of Monday's announcement.

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WPP Annual Profits Hit £1.5bn For First Time

The world's leading advertising agency, WPP, has announced a headline annual profit of more than £1.5bn for the first time.

The company - led by its founder Sir Martin Sorrell - credited growth in Britain and North America particularly for its performance and said it had enjoyed a strong start to 2015.

Its headline profit before tax for 2014 came in at £1.51bn - a rise of 3.7%.

Statutory pre-tax profits of £1.452bn were hit by the strength of sterling to the tune of £121m. 

Reported revenue rose 4.6% to £11.53bn.

The British group, owner of the JWT and Ogilvy & Mather agencies, said that while it had seen growth in every major world region with income from the travel and airline and entertainment sectors particularly high, the outlook for clients remained uncertain.

Its results statement warned of five 'grey swans' including a "litany of woes" in the Middle East and slowdowns for the economies of China and Russia.

In an interview with Sky News, Sir Martin also expressed support for HSBC - a group client - as the bank continues to handle historic allegations of tax avoidance and evasion at its Swiss private banking arm.

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US Group WhiteWave Has Appetite For Quorn

By Mark Kleinman, City Editor

The owner of Quorn, the meat-free food producer, ‎is mulling a sale of the business to the American group which owns Alpro, the plant-based milk alternative.

Sky News understands that The WhiteWave Foods Company has held initial discussions with Exponent Private Equity, which has owned Quorn since 2011.

The talks are highly preliminary and may not lead to a formal offer from WhiteWave or a deal, a source said.

Contact between the two companies comes as Exponent has been preparing an auction of Quorn that could value it at more than £400m.

The private equity firm held a beauty parade of investment banks several weeks ago but has not yet formally appointed one.

Based in North Yorkshire, Quorn has capitalised on growing consumer demand in some western markets for diets containing less red meat‎ amid public health statistics highlighting an explosion in levels of obesity.

In January, the company published figures showing that sales had risen by 7% in 2014 to  £150m,  bucking a trend of flat sales performances from many of its competitors.

Quorn's stronger sales were due in part to a deal with Wal-Mart, the world's largest retailer‎, which now stocks its products in more than 2,000 stores.

The horsemeat scandal in 2013 stoked concerns about food provenance, boosting the manufacturers of non-meat ranges.

Its foothold in the US market is likely to appeal to prospective buyers such as WhiteWave.

Last month, the American company reported record results for last year, with revenue and profit both rising by more than 30%.

WhiteWave is one of the biggest producers of plant-based foods, with brands such as Earthbound Farm, Silk and Alpro.

Even if WhiteWave does pursue a formal‎ offer for Quorn, it is unlikely to be the only bidder.

Hain Celestial, which has acquired British brands such as Covent Garden Soups in recent years, and Nestle, the Swiss giant which owns Kit-Kat and other confectionery products, are both being tipped to show interest.

Quorn's origins date back almost 50 years, although the brand itself was created in 1985.

It has had a string of owners, including Zeneca, the pharmaceuticals group, and Premier Foods, which sold the brand for £205m as it raised cash to stave off the threat of collapse.

Kevin Brennan, Quorn's chief executive, has vowed in the past to turn it into a billion-dollar brand.

Quorn is not the only British-based food brand on the market.

Sky News understands that the founders of Natural Balance, which produces the Nak'd range of cereal bars, have hired Stamford Partners, an advisory firm, to seek an outside investor.

They are said to be targeting a valuation for their business of roughly £50m.

WhiteWave, Exponent and Stamford Partners declined to comment.

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US Jobless Rate Tumbles To 5.5% In February

The US jobless rate plunged last month as hiring accelerated, raising expectations of a possible interest rate rise by the Federal Reserve.

The world's biggest economy created 295,000 net new jobs in February, despite some severe weather disruption and mounting layoffs in the oil industry because of recent price weaknesses, the Labour Department reported.

The unemployment rate was down to 5.5% from 5.7% in January - its lowest since May 2008.

The data meant that 3.3 million more Americans have taken jobs over the past 12 months.

Separate Commerce Department data also contained good news with the US trade deficit falling to $41.8bn in January as imports declined more than exports.

Financial markets expect the Fed to raise rates this summer and the payroll report will have done little to dampen that forecast.

The dollar, which is at 12-year highs against the euro, gained further ground though stocks barely moved amid the frenzy over rate rise speculation.

However, wage growth - a key metric eyed by the Fed - among the workers of private firms was just 0.1% last month.

It may be that Fed chair Janet Yellen would want to see a stronger rally in salaries before imposing increases in borrowing costs.

The report showed average hourly wages rose just three cents from January - 2% up on a year ago.

Hiring was strong in restaurants, health care and administrative services.

The oil and gas industry, just beginning to cut back in the face of the crash of crude prices, shed about 8,500 jobs.

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Big Firms Forced To Reveal Gender Pay Gap

Thousands of large companies will be forced to share details of the difference between what they pay their male and female workers.

The Government has agreed to implement the Liberal Democrat measure despite years of Tory opposition to it.

The move will mean companies employing more than 250 people will be required to publish the gap between average pay for their male and female workers.

More than 10 million people across the UK are currently working at firms covered by the legislation.

The current approach, which is voluntary, has seen only five out of around 7,000 large companies publish their gender pay gap.

Video: Clegg On Gender Pay Gap

The new measure, which will come into force within 12 months, could result in fines of up to £5,000 for firms that do not reveal the details.

Equalities Minister Jo Swinson said she was "delighted" her party won the "argument in Government".

She said the move "will force companies to ask themselves difficult questions about how they are valuing the contribution of women in their workforce and act to address problems".

Deputy Prime Minister Nick Clegg said: "These measures will shine a light on a company's policy so that women can rightly challenge their employer where they are not being properly valued and rewarded."

The legislation will be debated in the Lords on Wednesday, with the Government tabling an amendment to the Small Business Bill.

Video: Dec: Gender Pay Gap

A Government spokesman said: "Under this Government the gender pay gap is the lowest ever and has virtually been eliminated for those working full time under 40.

"However the pay gap persists, so we think it's time to move forward, so we can create the conditions to ensure that there is equality in workplaces across the country."

Shadow equalities minister Gloria De Piero said: "This is fantastic news for women but why have they waited so long?

"The reality is that it's only when the Government realised they would be defeated on this issue by Labour in the House of Lords that they saw the need to act."

The move comes as the head of the UN agency promoting equality for women said not a single country has reached gender parity.

Video: Dec: Gemma Arterton On Equal Pay

UN Women executive director Phumzile Mlambo-Ngcuka made the comments 20 years after a groundbreaking conference in Beijing where 189 nations adopted a blueprint to achieve equality for women.

Ms Mlambo-Ngcuka said that although progress had been made since Beijing, there are still fewer than 20 female heads of state and government.

She said the number of female politicians increased from 11% to just 22% in the past 20 years.

Ms Mlambo-Ngcuka also said "the sheer scale of the use of rape that we've seen post-Beijing", especially in conflict situations, "tells us that the women's bodies are viewed not as something to respect, but as something that men have the right to control and to abuse."

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