Louis Vuitton boss made offer for £200m Bond Street store

The boss of the Louis Vuitton fashion house made an offer to buy back the company’s flagship store on Bond Street from its indebted Irish owner, an Irish court heard yesterday.

David Daly, the Irish developer that owns the 20,000 sq ft Louis Vuitton store 17-20 New Bond Street as well as the Mulberry store at 40-42 New Bond Street , told the Irish court  that following the publicity over his battle with the Irish National Asset Management Agency, Bernaud Arnault had made an offer to buy his British property assets at a significant discount.

Daly said that 17-20 New Bond Street had been recently valued by Savills at around £190m, and that 40-42 New Bond Street had been valued at around £65m.

Propertyweek.com revealed two weeks ago that Nama had given Daly until the close of play on Thursday 23 June to pay back €450m of debt secured against his personal assets in the UK and Ireland, or administrators would be appointed.

BDO has now been brought in as administrator, but Daly is fighting this appointment. A full hearing of the case in the commercial court will take place over four to five days beginning on 13 July.

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Norwegian sovereign wealth fund completes second deal

The Norwegian sovereign wealth fund has completed its second deal in a £15bn investment drive, with the purchase of 50% of a €1.4bn Parisian portfolio from Axa.

Norges Bank Investment Management and Axa Real Estate Investment Management have set up a 50:50 joint venture which will see Norges buy a stake in a portfolio of Parisian offices valued at €1.4bn.

NBIM manages the Norwegian Government Pension Fund Global, the sovereign wealth fund backed by Norway’s oil and natural resources income. It is currently making its first push into property investment, and wants to transfer 5% of its holdings into real estate, which will amount to an investment of £15bn over the next 4-7 years.

Its first investment was a 25% stake in Regent Street, bought last year from the Crown Estate for £492m, and it had previously said it would target London and Paris for its first investments.

The joint venture portfolio will comprise the following assets: 12-14 Rond Point des Champs-Elysées; 1-3 / 2 rue des Italiens; 16 avenue Matignon; 24-26 rue Le Peletier; Meudon Campus, 92 Meudon; OPUS 12, 92 La Défense  (pictured); and 31-33 rue de Verdun, 92 Suresnes.

Karsten Kallevig, chief investment officer real estate of Norges Bank Investment Management, said: “This acquisition enables us to gain a significant exposure to the Paris office market, one of our key European target markets. We look forward to a long and beneficial partnership with the AXA Group.”

Pierre Vaquier, Chief Executive of AXA Real Estate, added: “The Joint Venture will allow AXA France Insurance Companies to reallocate capital and diversify into other European markets, especially the UK and Germany, while maintaining exposure to this important market by retaining a significant stake in the Joint Venture. We will continue to manage the portfolio.”

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London market takes long pause

Take up in the Central London leasing market showed a second consecutive quarter of low activity, according to new data from Capita Symonds.

Central London office take-up in Q2 2011 was below the historic quarterly average of 3m sq ft for the second consecutive quarter. Take-up in the City was revealed to be down by 22% over the previous quarter to 605,000 sq ft and down 36% on the 949,000 sq ft in same quarter last year.

The West End’s take-up fared better, but was down on the previous quarter by 9% to 722,000 sq ft and reflected a 35% reduction from the level achieved in the same quarter in 2010.

“Although it is too early for this to be called a trend, it is evident that businesses are staying put and the office market is biding its time,” Alan Dornford, director-markets at Capita Symonds, said. Dornford also explained that London “inevitably reflects what is happening in the wider world and there is increasing evidence of a slowing world economy.”

He also said that the impact of high oil prices and the Eurozones crisis on top of this causes caution in boardroom, which translates into reluctance within buildings to move, invest, or take on new staff.

The figures come after two years of high activity driven by business upgrading space and capitalizing on inducements on offer from landlords. As supply has shrunk and landlords have adjusted their pricing, the options for businesses looking to move have reduced and the financial case isn’t necessarily as compelling as it once was. The market is therefore now much more dependent on growth in the economy which includes new businesses coming into London and existing businesses adding more staff.

Rents in the city are currently in the region of £55 per sq ft, up 4% since the beginning of the year. In the West End, higher rents are being achieved, but very few have been achieved above £70 per sq ft.

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British Land to buy £175m Virgin Active portfolio

British Land is in advanced talks to buy a portfolio of Virgin Active health and racquet clubs from Société Générale for around £175m. 

British Land is looking to buy the 17 long leaseholds and freeholds for clubs including Brighton, Cardiff and Oxfordshire.

The former Esporta gyms were put up for sale by Société Générale last year in a £200m sale-and-leaseback. Virgin Active acquired the operating company, which included 55 sites, in April for £77.6m.

Savills is acting for British Land. All parties declined to comment.

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New UBS chairman faces tough decisions

Image Caption: Axel Weber's appointment has been widely praised (Keystone)by Matthew Allen, swissinfo.ch

Subject to shareholder approval, Weber will start as understudy to current chairman Kaspar Villiger next year as vice-chairman before replacing the former Swiss finance minister in 2013.

The appointment of Weber – who until April was President of the German central bank (Deutsche Bundesbank) – has been widely praised, particularly as he was snatched from under the nose of Deutsche Bank, which was eyeing him up for a prominent leadership role.
“It is a very positive move given Weber’s political experience from his role at the Bundesbank,” Bank Sarasin analyst Rainer Skierka told swissinfo.ch. “His regulatory knowledge is also a good asset for UBS to have gained.”
Such detailed understanding of regulatory issues is seen as a major advantage for UBS as it plots a course to compete in the international markets despite having tougher capital requirements foisted on it by the Swiss authorities.

UBS’s gain is certainly seen as Germany’s loss as, until April, Weber was tipped as a candidate to succeed Jean-Claude Trichet as President of the European Central Bank.
Weber’s surprise resignation from Germany’s central bank, six months before his term was due to expire, caused political shockwaves earlier this year. It is also reported that Deutsche Bank’s inability to recruit Weber has caused friction between the executive and the board.
The Swiss media, by contrast, has been impressed by the speed at which UBS managed to persuade Weber to join its ranks. He is seen as a perfect replacement for Villiger, who joined UBS in 2009 with a brief to help resolve the bank’s tax evasion crisis in the United States.
Weber’s appointment, however, comes at a higher financial cost to the bank than Villiger, who restricted his base salary to SFr850,000 ($1 million) when he came to office.
Weber will receive a “golden hello” of SFr2 million in cash and 200,000 shares that could boost his package to some SFr5 million when he is able to sell them.

Villiger justified the package by telling the SonntagsZeitung newspaper that UBS had to “adapt to the global market.” Dominique Biedermann, head of the sustainable investment fund Ethos Foundation, rejected that argument, stating: “This announcement sends out the wrong political and economic signals.”
Weber will have to work hard for his money, according to observers. It is widely expected that UBS chief executive, Oswald Grübel – who was brought out of retirement to stabilise the bank in 2009 – will follow Villiger through the exit door in the next couple of years.
Grübel has been credited with bringing UBS back into the black after years of hardship, and finding the right replacement is a crucial task.
UBS has also criticised the Swiss financial regulator for imposing harsh capital requirements on the bank, as it has on Credit Suisse. Grübel has gone so far as to hint that some businesses, most likely investment banking, could be relocated to more favourable regulatory regimes.
The arrival of Weber, who has helped to shape Germany’s regulatory response to the financial crisis, would add an interesting new ingredient to how UBS deals with the “Swiss Finish” rules – due to be voted on by parliament this year.

Much speculation has also centred on UBS’s investment banking business for other reasons. Like many other rivals, investment banking has failed to spark in recent months at UBS as the risk adverse climate among clients continues.
“This is not a phenomena that is restricted to UBS,” Skierka said, “Investment banking is having a hard time in other countries, particularly in the face of increased capital requirements.”
“With a lack of client activity and the strong Swiss franc, investment banking is not a fun environment at the moment.”
In order to increase profitability, UBS needs to work out what services to retain and what to kick out, according to Skierka.
“It is clear that UBS, with its strong wealth management tradition, needs to offer clients merger and acquisition, share and bond trading services, for example,” he said. “Trading high risk products [such as mortgage backed securities] is no longer profitable.”

Matthew Allen, swissinfo.ch

UBS’s next chairman in waiting has had a long career in economics and finance.
The 54-year-old was a member of the German Council of Economic Experts from 2002 to 2004, prior to becoming President of Germany’s central bank.
In his role at the Deutsche Bundesbank he served as a member of the governing council of the European Central Bank (ECB) and was on the board of directors at the Bank for International Settlements.
In addition, he held the concurrent positions of German governor of the International Monetary Fund and was a member of the Steering Committees of the European Systemic Risk Board and the Financial Stability Board.
Weber was expected to see out his eight year term as Bundesbank president until the end of October this year and was then widely tipped to as a candidate for the presidency of the ECB.
His surprise resignation from the Bundesbank in April led to overtures from Deutsche Bank to take over as chief executive.
But the German national opted for a new career at Switzerland’s UBS bank. Shareholders have been recommended to accept Weber as vice-chairman in May of next year before succeeding chairman Kaspar Villiger in 2013.

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“Sober” Swiss franc strategy praised

Image Caption: Switzerland has to consider its franc policy carefully. (Keystone)by Renat Kuenzi, swissinfo.ch

Resorting to a proactive strategy would be counter-productive, he tells swissinfo.ch.

The Swiss franc has gained 25 per cent in value against the euro and the dollar over the past four years. The cabinet is currently considering measures to offset the negative impact of the continuing strong Swiss franc on the country’s industry.

Thomas Straubhaar: At first sight this seems quite logical. But I would urge caution as this kind of state aid is always a precarious balancing act. Direct assistance can also have side effects. It’s also hard to agree upon which businesses need help and which don’t.
Switzerland has an import industry, which benefits from the strong franc, as well as an export one. Trade associations’ comments that the strong franc is a problem for the whole of the Swiss economy is just not true.
Industry and the hotel sector both benefit, as imported goods such as energy, raw materials or luxury items have become cheaper compared with abroad. Swiss tourism also strongly targets high-spending guests, who are less affected by the exchange rates.
The second benefit of a strong franc for Switzerland is that the country has the lowest capital costs in the world. The interest rate is low and risk premiums are extremely low. A Swiss hotel owner who is modernising his business is able to secure much cheaper capital than his competitors in the rest of Europe.
As capital is so cheap Swiss firms operate in a capital-intensive manner. Productivity is therefore extremely high in Switzerland and industry is more efficient and competitive.

Professor Thomas Straubhaar (HWWI)

T.S.: Not at all. Staying calm is the right strategy. It would be extremely perilous to intervene in the short term in the complex exchange rate mechanisms. The problem would be how to ensure accuracy and longevity, as by the time measures take effect the exchange rates could look completely different.
The tourist sector and exporters, who ask high prices for high-quality services, have to maybe accept lower margins but not necessarily a drop in turnover or demand.

T.S.: Diversification is a smart strategy. In Southeast Asia, eastern Europe and Latin America markets are growing at a tremendous rate and the public’s purchasing power is rising fast.
The countries to watch are not just China and India, but also Malaysia, Indonesia, the Philippines and Vietnam, and in Europe the eastern European countries, and especially Turkey.
The Swiss franc has risen not only against the euro, but also against the dollar and the currencies in all these countries.
Swiss businesses have recently been offering not only individual products, but also services that make up the whole value chain including taxation, finance and insurance.
The most popular example of this is the Olympic Stadium in Beijing. The Chinese implemented the project but the Swiss architects Herzog & de Meuron oversaw the whole process in a very economical way.

T.S.: The situation for central banks is incredibly difficult; that of the SNB is slightly easier than that of the European Central Bank (ECB). There have already been new financial bubbles as witnessed by rising prices on stock markets and for raw materials, property and financial assets. Meanwhile the worst is still not over for many countries’ economies.
Central banks have had to raise interest rates due to these bubbles. If the SNB followed suit the Swiss franc would become more attractive and this would lead to a new re-evaluation pressure on the franc.
Compared with the SNB, the situation for the ECB is much tougher. If you look at Germany it should raise interest rates as their economy is booming and the inflation rate already clearly lies above the two per cent mark and this is continuing.

Fellow eurozone states like Greece, Ireland, Portugal and Spain are on the edge of an economic depression. If interest rates rise that would cause interest charges to explode. The restructuring of national budgets and economic recoveries would be delayed or hindered.
Central banks therefore face a terrible dilemma. The creation of bubbles is obvious, the economies are only again operating at capacity in a few countries, and there are still too many market risks. If interest rates are raised too quickly, it cannot be ruled out that the economy again falters.

T.S.: I don’t really think so. Last winter the SNB tried to influence exchange rate policy. It bought euros in order to weaken the franc. Now it has the problem of sitting on higher euro assets and has to write them down.
Tying the franc to the euro would simply mean the SNB would have to buy euros on a daily basis to keep the Swiss franc artificially devalued. Switzerland would end up feeling like a tiny actor in the middle of the huge eurozone with very little clout.

Renat Kuenzi, swissinfo.ch
(Adapted from German by Simon Bradley)

The Swiss franc is a so-called “safe haven” currency, which means that investors and speculators buy it when other currencies, including the euro and the US dollar, are under pressure.
The increasing value of the Swiss franc is a source of great frustration for exporters because their goods are more expensive to sell outside Switzerland, particularly in the eurozone.
It costs around SFr1.22 to buy a euro at present. A year ago, it would have cost SFr1.48. The increase in the value of the franc over the 12 months is about 17%.
The franc has also gained inexorably in value against US dollar, that has been weighed down by slow economic growth and – above all – an increasing mountain of debt.
The dollar has been below parity against the franc for some time. A single dollar can now be bought for around 85 Swiss cents. 
The Swiss National Bank has emphasised that it does not pursue an exchange rate target, but consistently bases its monetary policy on its legal mandate.
This mandate stipulates that “the SNB is required to ensure price stability, while taking due account of economic developments”.

In the last 20 years Switzerland has become a major exporting country, according to a study by the Swiss bank Credit Suisse published in May 2011.
Exports of goods and services accounted for only one third of gross domestic product in 1990; by last year this had risen to 57%.
The reason for this rapid increase is globalisation.
In comparison with many other countries, the Swiss export industry emerged relatively unscathed from the 2008-2009 international economic crisis, and recovered more quickly.
One reason for this is the fact that the pharmaceuticals industry, which is relatively stable, accounts for almost one third of exports, the report says.

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Blackstone to take on £1.6bn of property loans from RBS

Royal Bank of Scotland has agreed to sell a £1.6bn portfolio of property loans to a company managed by Blackstone in a key deal for the property and banking markets.

RBS has picked Blackstone for the loan portfolio, in a process codenamed Project Isobel, ahead of Lone Star, Starwood Capital and Westbrook Partners.

If a purchase reaches completion without a hitch, it could form a prospective template for similar sales of loans by banks, and thus help lenders rid themselves of problem legacy loans and allow them to lend again.

The portfolio comprises whole loans and portions of syndicated loans with a face value of £1.6bn that are both performing and non-performing. It is thought that the price set to be paid for the loans is around £1.1bn – a discount of around 30%.

The sale of this portfolio will not net the winning party stratospheric returns but will open the door to other deals with RBS

Part of the reason why the sale has taken so long to come to a conclusion is because RBS and its advisers, Lazard and Berwin Leighton Paisner, have been fine-tuning the structure to ensure the bank takes the smallest possible writedown.

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