JP Morgan trader 'London Whale' blows $13bn hole in bank's value

JP Morgan's London office. Photograph: Carl Court/AFP/Getty Images

The City trader at the centre of a $2bn trading loss at JP Morgan Chase had returned to his home in Paris on Friday as the repercussions of the loss spread across the markets.

Some $13bn was wiped off the value of America's largest bank after it admitted the scale of the trading activities of Bruno Iksil – nicknamed the London Whale for his bullish trading – and his colleagues in the bank's little known "chief investment office". The US Securities and Exchange financial watchdog was said to have begun reviewing the losses.

Contacted by the Guardian, Iksil was reluctant to comment. He was thought to be in Paris and said: "I cannot talk about it. You will have to speak to the bank's representatives."

The banker, who is understood to be married with four children, spends Monday to Thursday in London, staying in a flat in Earls Court, returning to France on Fridays. According to his profile on the Bloomberg trading platform, he says he is "walking over water and humble".

A graduate in engineering from the École Centrale in Paris 20 years ago, Iksil had become so well known in the opaque $10tn market for credit default swaps – a complex type of insurance product – that he was nicknamed the "London Whale" and also known as Voldemort, after Harry Potter's nemesis.

Iksil is thought to be one of the highest-paid bankers in London and his New York-based boss, Ina Drew, whose pay has to be published, received $14m last year.

The Financial Services Authority has been informed and will liaise closely with the bank, which had earned an unrivalled reputation for navigating successfully through the 2008 banking crisis.

Before the shock announcement, JP Morgan chief executive Jamie Dimon had been key in persuading the US government to water down new regulations, in particular the so-called Volcker rule that aims to limit risk-taking by banks considered "too big to fail".

US representative Barney Frank, a Democrat who gave his name to the 2010 Dodd-Frank law on regulation, said: "This regrettable news from JP Morgan Chase obviously goes counter to the bank's narrative blaming excessive regulation for the woes of financial institutions." He added: "The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2bn harder to make today."

Senator Jeff Merkely, another Democrat, said: "This really is a textbook illustration of why we need a string Volcker rule. In the words of JP Morgan's chief executive, he had a strategy that was, quote, 'flawed, complex, poorly reviewed and poorly monitored'. And if that sounds eerily familiar, it's because it is an exact description of the type of risk-taking that got us into this financial crisis and recession."

Iksil was part of team based inside JP Morgan's London head office, which was supposed to hedge – or insure – the risks the bank was running.

The biggest was credit risk, essentially, the chance of customers failing to pay their bills – and the bank had recently embarked on a new strategy to hedge this risk.

Iksil was one of a number of traders involved in this strategy, but he has turned out to be the most high profile ever since the size of his trade in credit default swaps attracted the attention of his rivals.

His positions were so large that he was said to be moving prices in this market. In particular, Iksil offered insurance against companies defaulting on an obscure index of 125 companies known as CDX IG 9. The companies on the IG 9 index were as varied as Campbell's Soup, Time Warner and Walt Disney. During his time at JP Morgan, Iksil is reported to have generated $100m, and is usually known for his bearish stances, performing particularly well during downturns.

There is thought to be more than one high-profile trade behind the losses – which the bank has admitted could escalate. JP Morgan is being selective about the information being disclosed because its rivals might try to move prices against it as it attempts to unwind the trades.

Reports of Iksil's risky transactions first surfaced in the US a month ago, but were dismissed by Dimon as "a complete tempest in a teapot". But in a hastily arranged conference call to investors on Thursday night he said: "The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment." He admitted he had "egg on his face".

The bank usually makes $5bn profits per quarter and should make up the lost ground.

Shares fall

Bank shares were knocked as dealers digested the $2bn (£1.2bn) of losses uncovered by JP Morgan Chase and the implications for regulatory reforms. Barclays lost 2.8%, while Royal Bank of Scotland fell sharply before recovering most of its losses. US banks such as Morgan Stanley and Goldman Sachs were down 4.5% and 3% respectively. Ian Gordon, banks analyst at Investec, said the share slumps were caused by "the random fear that it could happen elsewhere and prompt a more severe regulatory response". A spokesman for the Treasury said the losses justified the need for a "ringfence" between retail and investment banking, as recommended by Sir John Vickers.

The rise of payday loans replaces one debt bubble with another, nastier one

Wonga's move into the business loans market shows the banks are not providing a service that they exist to provide



What sort of bank fails to support good businesses in difficult times? A bad one, writes Deborah Orr. Photograph: Rosie Hallam/Wonga
Every crisis brings its opportunities. It's paradoxical, but not surprising, that the credit crisis has provided an opportunity for the "alternative credit industry". Not many new businesses are opening in the nation's high streets. But payday loan companies have never had it so good. The payday loan sector is now "worth" £1.7bn, having expanded five-fold in recent years. This week, brash and breezy payday loan company Wonga announced that it was moving into small business loans. This is yet another sick symptom of the continuing bind that the economy is in.


It's appalling enough that such companies were allowed to operate pretty much as they pleased during the boom, when credit was cheap and plentiful. Back then, it's fair to say, there was a prevailing, if delinquent, view that those who delivered themselves into the clutches of "alternative usurers" had only themselves to blame. Now, in recession, that's a harsh argument to make. These alternative loan businesses have expanded in direct response to the economic crisis. Anyone can see that this new post-crash penury is intimately connected to woeful general circumstances, not personal moral failings.


Now, surely, is a good time for society to realise the basic and repugnant folly of making access to cash significantly more expensive for those who need it most desperately. Wonga is careful to emphasise that its small business loans will be short-term, aimed at companies with cash-flow problems, rather than companies seeking capital investment. Wonga will provide, it says, a service that is supplementary to banking services.


Can there be a more damning indictment of the banking sector's failure to do its job than this? What kind of bank supports a viable business so inadequately, at such a difficult time, that the business is compelled to go to a different lender, to take out and pay off the same loans over the same cycles, but at a higher cost? A bad bank.


Wonga has been shy so far about informing the public of its interest rates. But it doesn't take a financial genius to work out that they will be higher than bank rates. That, after all, is the nature of the beast. Payday loan companies rely on the high rates paid by those who don't default to supplement those who do. They can therefore afford not to be choosy. For them, it's win-win. Their overheads are low because they ask few questions and make few checks. But with the banks being so cautious in their own lending, Wonga can be sure lots of their customers will pay up and cover the costs of those who don't. That's right. Good businesses will be triply disadvantaged at this time when they need to be nurtured. They will pay extra for the cash they need to keep things ticking over, and that cash will supplement their less disciplined competition, and consign some of their own profit to this growing vulture sector. Lovely. The "deserving businesses" will finance the growth of the "undeserving businesses".


Talk of the "deserving poor" and the "undeserving poor" underpins much debate about which individuals should be afforded society's protection. Yet, all this serves further to obscure a basic fact about money and economics that is constantly referred to, but rarely explicitly acknowledged. Capitalism isn't just a way of generating wealth. It's a system that distributes reward and punishment in the form of access to goods and services via money. That's why people find it so stingingly unfair that some people are rewarded just by the circumstances of their birth while others are punished by them. Money is a reward for success; some humans are given generous acknowledgement of their massive success from their very first breath.


Suck it up. That won't change. But the responsibility of advantage can and should be understood and managed better.


The biggest flaw in capitalism is that it's usually the people with the money who decide who deserves to be rewarded. That was what the bankers' bonuses rows were really all about, and the MPs' expenses rows. People who have never experienced life without enough money are, of course, likely to have little idea of how hard it is to achieve success from nothing. But, again, that doesn't matter quite as much as people think it does. This flaw in capitalism is quite easily rectified.


If economists would only see that growing inequality is prima facie evidence that rewards are being stockpiled by the prize-givers, instead of distributed deeply and widely enough to maintain the consensual and stable society that capitalism needs in order for it to function smoothly, then we'd save ourselves much grief.


It was perfectly obvious during the boom that the economy was not working well, precisely because inequality was rising. Likewise, free-marketers will always argue that welfare state activity is hampering capitalism. Again, welfare state activity is a booming klaxon, declaring loudly that capitalism is failing adequately to make room for Adam Smith's invisible hand to make its general gesture of support with sufficient flourish. I was glad this week to read a piece by German economist Till van Treeck, which reported: "Renewed interest among economists in inequality as a macroeconomic risk is highly encouraging."


It's time for capitalists to understand that they failed to regulate themselves, and that unless they come up with a credible plan for self-regulation, there will be consequences. The banks are still arguing that regulation will stifle them. Instead, lack of regulation continues to stifle other businesses – all other businesses except those more venal than the banks themselves.


The government is always banging on about "helping" small businesses. Here's an idea. Give small businesses the power to sue banks that refuse to give them loans that prove viable. The banks should then be obliged to make good any extra cash that went the way of the alternative providers. After all, they have been asked nicely to start lending to small businesses for a number of years now. Wonga's move into this market simply shows that, despite the protestations of the banks, they are not providing a service that they exist to provide.


Of course, that still leaves personal borrowers at the mercy of loan companies. The Labour MP for Walthamstow, Stella Creasy, has been campaigning for two years for a cap to be put on the cost of credit.


Unbelievably, the government agrees that the proposed Financial Conduct Authority (FCA) should be allowed to cap the cost of credit – in theory – but refuses to give it explicit power to do so. This means that any attempts to curb interest rates by the FCA would be subject to expensive and possibly fruitless legal challenge.


In other words, even after such a seismic financial crash, ministers have no real interest in paying more than lip-service to the idea that risky and exploitative lending should be discouraged. Payday loan companies are one of the few sectors with "growth". Curbing their activities would have a detrimental effect on Britain's economic figures. A debt bubble is being replaced with a smaller, but even more aggressively unforgiving debt bubble.


Smart.

This is no shareholder spring, it's just a different class of self-interest

Those protesting about high pay are not making any moral point – they merely miss the huge dividends they used to receive






The perennial request for more police on the streets was met in satirical fashion on Thursday', when more than 30,000 officers marched against the cuts in London. Photograph: Eddie Keogh/Reuters
I realise that history repeats itself as farce, and increasingly does so within approximately three news cycles, but could the phrase "shareholder spring" please be beaten, tortured, and buried in an unmarked grave at the earliest possible convenience?


Illustration by Jas
How can the mere risk of life and limb against brutal regimes be metaphorically yoked to the sheer inspirational courage it takes to turn up to an AGM at the Canary Wharf Hilton because you're ticked off about the dip in your dividends … but no, I don't think any of us has the stomach to continue with that particular line in sarcasm. Even by the glib standards of Her Majesty's Press, the classification "shareholder spring" seems quite the achievement. If "spring" is the cliche du jour, then I actually yearn for the return of the Watergate-inspired "-gate" suffix. Come back, -gate. All is forgiven.

Perhaps there really is the odd, blinkered, S-Class Mercedes-driving arse, in a tizz about his dividend, who imagines that provoking the resignation of the Aviva boss over executive pay is in some way akin to running the gauntlet of Bashar al-Assad's death squads. I implore him to get in touch.

In the meantime, let's dispel the great myth about the so-called "shareholder spring", which is that the plucky rebels are making some sort of significant moral point. With the rare exception of shareholding pressure groups such as War on Want, those voting down remuneration packages have only affected a conscience after sustaining losses in the financial crisis. As their almost total placidity displayed in the years when the fat cows were coming out of the Nile, they couldn't give a toss about executive pay if their dividends are up.

Even now, their rooting out of injustice appears highly targeted. Anyone detecting some sort of sudden altruistic commitment to the greater good among most shareholders is seeing things. Theirs is merely a different class of self-interest.

Still, you have to admire their insouciant refusal to consider their part in the problem. We know all about emetic levels of executive pay; that has long been part of the conversation about how we found ourselves up the creek. But less frequently discussed is the ever-increasing pressure that firms – particularly those in the financial sector – were under to pay hugely cavalier dividends to their shareholders. In many cases they have continued to do so after the financial crisis hit, instead of putting aside money as capital to cushion themselves in the event of further recessions or crises. So perhaps I've missed it, but I can't recall any AGM proposals in which shareholders criticise management for rewarding them too generously in the past. It might be the most surreally retroactive of resolutions, but it would make a valuable point.

After all, the AGM setting does not preclude the making of radical philosophical points, as HSBC – the financial sector's biggest dividend payer – discovered almost a decade ago. Present at its shareholders' meeting was one of the bank's night-time cleaners. Charities had bought shares for Abdul Durrant, and he made an extraordinary plea to the bank's boss to be paid a living wage.

"In our struggles our children go to school without adequate lunch," Durrant explained in front of all the other shareholders. "We are unable to provide necessary books for their education. School outings in particular they miss out on. In the end, many of our children prefer a life of crime to being a cleaner." Which rather puts today's shareholder moralising into perspective.

Still, if absurdist uprisings are your bag, you were certainly spoiled for choice this week. The perennial request for more police on the streets was met in satirical fashion on Thursday, as an estimated 30,000 officers in London alone tore themselves away from lucrative overtime or being on the sick to march against budget cuts and changes to their working practices. "Remember what you did to the miners!" was the tart verdict of one of the protesters in the separate public sector workers' strike. "Have a bath," was one officer's retort to the Socialist Workers party demonstrator who gave up a mischievous cry of "Charge the police!" (Incidentally, huge thanks to the several coppers and ex-coppers who contacted me after last week's column with observations that tended toward the aggressive. I would report the worst offenders of you to yourselves, but naturally fear the whole episode could end in a bizarre incident in which I was alleged to have kicked myself down the nick stairs.)

Perhaps we get the revolutions we deserve. If Britain's contribution to global democratic sea changes is to be a "shareholder spring" and a bunch of policefolk reclaiming the streets from themselves to defend their Spanish practices, then that is a matter for sobering reflection. In fact, in the interests of completing the trifecta, I would now like to see MPs march against a penny of cuts to their own diamond-encrusted pensions. It would be a development that would indicate the news had finally eaten itself, admittedly, but that might offer some perverse form of closure.

Can Europe survive the crisis?

Juli Zeh (left) and Constantine Giannaris compare German and Greek perspectives on the eurozone crisis. Photograph: David Finck; Panagiotis Moschandreou for the Guardian
As elections across Europe this week threaten to deepen the Eurozone crisis still further, Athens-based filmmaker Constantine Giannaris shares his experience of austerity with German novelist Juli Zeh. Oliver Laughland listens as both lament the potential decline of the European project.

Constantine Giannaris: I live downtown in the old historic centre, abandoned by the middle classes over the past 30 years. It's a poor, migrant and traditional working-class area. The scenes here at the moment are horrifying, the kind of scenes unthinkable in London or Berlin. Not third world, but fourth world. Many immigrants and asylum seekers here are looking through rubbish cans [for food], and now impoverished workers, hundreds of them, are having to sift through recycling, taking the scraps of metal and paper to sell in order to make ends meet. We have junkies with no methadone or needle programmes, and prostitution is rife. It's not a pretty picture at all.

Juli Zeh: That's not a picture many Germans understand. They don't have the slightest idea what is going on in Greece. They talk about the crisis on a very abstract level and are more interested in how our economy will develop in the coming years. We don't think about the impact on real people. Many don't consider Greece a real country: it's far away, it's small, a place we used to go on holiday, but I get the feeling many normal people never really realised Greece was a country with politics, with an economy, with problems, and now it's a huge crisis and everyone is only afraid about their personal belongings.

CG: We're living through our own version of the Weimar Republic. It's not just an economic crisis, but a fundamental social crisis and a collapse in the very structures of parliamentary democracy. Especially since last weekend, with the delegitimisation and destabilisation of parliamentary order. This is partly our own fault in terms of the way politics, the economy and society have been run since the fall of the junta. People are beginning to lose hope in terms of the traditional parties, and in my area we've seen the rise of extreme far-right and radical left movements. The price of the policies imposed in order to get the bailouts is vast suffering. It's the pauperisation of a whole section of the middle class. It's a dangerous situation that's leading to immense frustration, not only with political parties, politicians and the ruling elite within this country, but also the ruling elite within the EU. As one eloquent Greek economist put it, this medicine is not a medicine: it's a poison.

JZ: And it's not clear those measures will lead to any success in the future, right? I feel a huge sense of resignation here, especially since the weekend, that our ideas on how to keep catastrophe at bay have failed. We're not feeling any impact of the crisis here, but people talk about it in a very apocalyptic manner, as if everything is going to break down, the Euro is going to collapse. But it's really on a level of discourse. The economy here is rising, we are better off than we were three or four years ago, we've gained from the crisis – it's only something that affects our heads, not our everyday life.

CG: One thing that has really infuriated people here is the idea that we're all lazy and none of us work, we're all absolutely unproductive, that life down here is just one long siesta or party. It's very insulting. People work very hard here. Maybe that doesn't reflect itself in terms of productivity or competitiveness because of various endemic problems within the country and the economy.

JZ: And Germans don't work as much as they think! The trouble is that dealing with the crisis hasn't been purely rational, right from the beginning. There was a huge emotional reaction here, and Germans have always had the feeling we are the ones who pay all the time. We are the rich brother who is paying for the poor brothers, as if it's a charity or something. What was clear from the beginning, and shocked me deeply, was that there was no feeling of European solidarity. Germans were not willing to understand that we benefit from Europe, even from the crisis itself.

CG: Indeed, it's not possible for Germany to be a surplus economy without the deficits of the so-called Club Med.

JZ: I think the reason for the severity of the saving measures now imposed on Greece was political, so that the German politicians could explain to their voters that we lent you the money, generous as we are, but now you owe us obedience.

CG: What German politicans did with the German people, I think, in a lot of ways, Greek politicians did with the Greeks. They say: "We're not really responsible," or "We have to do this because Merko and Sarkozy say so … ", so there was no attempt by them, the political formations that have ruled here for decades, to offer a way out with hope and real negotiation. They didn't want to affect their own clientelist relationship with their voters and upset particular interest groups, and definitely not the rich.

JZ: Then they identified the old enemy again: the force of German colonisation.

CG: That's definitely a paradigm influencing both the extreme national left and Nazi right. You know: "We're under the jackboot of the EU," and this is very, very dangerous, it's a complete cul de sac. The whole idea of a European Union, however faulty it is, is to overcome the history of this dark continent.

JZ: I really thought Germany had understood that the EU was a great gift to us, and comes out of our historical role in the continent. That we live in peaceful, prosperous times, and this is all a result of this great union. But since the crisis started, this whole belief has revealed itself to be superficial. I fear the trust, wish and hope to go on with this European project is not so deep in our souls.

CG: Part of the problem is the lack of leadership throughout Europe. There's nothing to really inspire people. It's all negative. Everything is beginning to splinter along traditional national and ethnic lines, which is completely tragic. Dark forces have taken over.

Oliver Laughland: Does Hollande's victory in France allay those fears?

JZ: I'm not sure Hollande will be able to change much. He came in with great promises, but I don't think he can do much different from Sarkozy. The French president has to co-operate with the German leader. This connection is so important for the EU, and both countries know there's no possibility of splitting off. They have to stand side by side.

CG: Here, we have a lot of hopes about Hollande. But in the end I think he will just toe the line. There's a lot of rhetoric around how the package has to change – more development, more growth to sustain this stablisation of Europe – I'm not sure to what extent this is just rhetoric or whether they really mean it.

JZ: I just hope that my newborn child, when he is 20 years old, will still be able to travel in a Europe without boundaries, and will inherit a peaceful Europe where we consider each other as friends. I still think it's possible, but my optimism towards the European project was much greater a couple of years ago than today.

Why Europe needs Greece

Syriza's electoral success marks the start of the first major battle against austerity. The whole continent should will them to win





Syriza, led by Alexis Tsipras, centre, 'stands every chance of … forming a coalition government of anti-bailout forces' in Greece. Photograph: Simela Pantzartzi/EPA
The clear winner of the recent Greek elections is Syriza, a coalition of leftwing organisations active for several years. The fascist Golden Dawn party has also made stunning gains but its rise, disturbing as it might be, is neither the main outcome of the elections, nor yet a major threat to Greek society. Political momentum belongs to Syriza. If it gets its act together, it could help resolve the crisis and give a boost to the European anti-austerity movement.

The two staple parties of Greek government – Pasok and New Democracy – have been trounced for bringing the country to this pass over four decades, and for implementing the bailout agreements. The Greek electorate has clearly stated what it does not want: old politics and the so-called rescue by the troika of the EU, the International Monetary Fund and the European Central Bank.

During the past two years a parade of mediocre Greek politicians have pretended to negotiate with the troika, while decrying their own country as "corrupt". They were backed by technical experts terrified at the thought of displeasing the lenders to Greece. Some of the politicians and experts were people who had also handled the disastrous Greek entry into European monetary union. The result was two bailout agreements, in May 2010 and March 2012 – monuments to bad economics and social callousness. By the end of 2012 austerity will have led to contraction of the Greek economy by 20%, a jump in unemployment toward 25%, a full-blown humanitarian crisis in the urban centres, and a completely unmanageable public debt. Greece is dying on its feet. Meanwhile its old political class twitters on about participating in the European "game" and making structural reforms that will bring growth in the future.

Syriza has caused an earthquake by denouncing March's bailout. It has called for a moratorium on debt payments, an international commission to audit Greek debt, aggressive debt write-offs, deep redistribution of income and wealth, bank nationalisation, and a new industrial policy to rejuvenate the manufacturing sector. These measures are exactly what the Greek economy needs. Implementing them depends entirely on rejecting the recent bailout and stopping payments on the debt.

Syriza believes that the measures can be introduced while the country remains within the eurozone. It has been unwilling to call for Greek exit, thus increasing its appeal to voters who worry about the aftermath of exit and believe that the euro is integral to the European identity of Greeks. In my view, and that of many other economists, it would be impossible for Greece to stay in the eurozone if it went down this path. Moreover, exit would be both necessary and beneficial to the economy in the medium term, and remains the most likely outcome for Greece. If Syriza really wanted to contribute to solving the crisis, it should get itself ready for this eventuality.

Nonetheless, the pressing issue at the moment is to free the country from the stranglehold of debt and austerity. As long as Syriza is prepared to take action to achieve these aims, and the Greek people wish to give it the benefit of the doubt on the euro, its role can be positive. At the very least, it offers a chance for Greece to avoid a complete disaster that might truly lead to the rise of fascism.

The current round of domestic political negotiations is unlikely to lead to a government being formed, especially one that could continue to implement the terms of the bailout. There will probably be new elections in the near future and Syriza stands every chance of winning decisively, thus forming a coalition government of the anti-bailout forces. But for this, Syriza should realise its own limitations, and actively seek to create the broad political front that Greece needs.

It is important to seek unity at all times, avoiding both gloating and the ancient factionalism of the Greek left. Syriza will need the active co-operation of the rest of the left if it is to muster sufficient forces to deal with the storm ahead. It is equally important to improve its appeal to experienced and knowledgeable people across society, for it will need many more in its ranks.

Finally, if there is a new government led by Syriza, it will rely on the support of people across Europe to tackle the catastrophe inflicted on Greece by the eurozone crisis. The first major battle against austerity is about to begin in Greece, and all European people have an interest in winning it.

Carpetright founder steps down after 24 years

Lord Harris is a self-made millionaire who made his fortune through selling carpets for more than half a century and founded the group in 1988

Lord Harris of Peckham. Photograph: Andrew Winning/Reuters

Lord Harris is ending his 24-year reign as chief executive of Carpetright, with the struggling flooring specialist announcing the former finance director of Sainsbury's as his replacement.

The move comes a fortnight after the retailer issued its seventh profit warning in just over year, triggered by rising living costs and a moribund housing market. Lord Harris is a self-made millionaire who made his fortune through selling carpets for more than half a century and founded the group in 1988. However, the educational philanthropist and Conservative party donor will maintain an influential role at the business by retaining his position as chairman.

His replacement is also no stranger to the company. Darren Shapland is a non-executive director at Carpetright and was the firm's finance director between 2002 and 2005. Shapland then left to take up the same role at Sainsbury's, later becoming group development director. Lord Harris said: "I am confident he will make a huge contribution to the future of the business." Carpetright also announced that the heads of its UK and European businesses will step down from the board in order to retain "an appropriate balance" between executive and non-executive directors.

Sheila Noakes, Carpetright's senior independent director, paid tribute to Lord Harris. "He is a hard act to follow," she said. A Carpetright spokesman said Harris would initially work four days a week as chairman before gradually reducing his day-to-day role. Harris's son Martin is the firm's commercial director. In Carpetright's latest profit warning, the company said annual profits would be between £3m and £4m, a sharp decline from previous forecasts of between £12m and £17m.

Shapland said: "I am delighted to be appointed as chief executive of the Carpetright business and I am looking forward to working with Lord Harris and the team in the future development of the business." Shares in Carpetright closed up 1.2% at 625.5p, valuing the business at £417m.

Government has no idea on airports, says IAG chief Willie Walsh

Willie Walsh's IAG is the largest airline group at Heathrow. Photograph: Micha Theiner/Rex Features
Willie Walsh, the boss of International Airlines Group, has said he will not be engaging in the coalition's long-awaited consultation on the future of Britain's airports because the government "has no idea what it is talking about".

The overdue draft aviation policy is expected to be published this summer along with a call for evidence on hub airport capacity. Walsh and others, notably the airport operator BAA, have long argued that a hub airport – one sufficiently large to allow connecting passengers to fill long-haul routes – is crucial and that Heathrow, Britain's only hub, is no longer big enough to allow flights to new destinations. As the owner of British Airways and Spain's Iberia, IAG is the largest airline group at Heathrow.

Walsh said: "When I hear the government talking about an intelligent use of capacity at Heathrow – they have no idea what they are talking about. This is the government that cancelled the third runway. They don't know what they are talking about. I've no confidence that this government will able to meet the challenge."

Walsh questioned whether the consultation would be "real", saying: "If they close off options before they start, I don't see the merit in engaging with it."

The coalition has ruled out a third Heathrow runway, and last week the transport secretary, Justine Greening, said "mixed mode" – allowing takeoffs and landings on the same runway – would also not be considered. However, Greening said the government would look at other, unspecified ways of maximising Heathrow's capacity.

George Osborne, the chancellor, has said the government will explore all options for maintaining Britain's airport hub capacity with the exception of a third runway at Heathrow.

Walsh said: "We need to be honest and mature – if you're going to have a consultation, to say you're eliminating options before you start doesn't seem mature or really serious."

Greening has promised a fast process and said she will set out a timeline for action as part of the call for evidence on hub airports, which she hoped would be "a more informed debate with a little less heat and more light".

Walsh said: "They've been giving that answer for two years – there isn't any credibility in this government. They should turn round and say: 'You know what, we don't know what we're doing.' Then we'd know where they stand."

Walsh, who is taking a delegation of businessmen to China this weekend to explore export opportunities, said the lack of airport capacity in the UK was harming British business. "China isn't just about Beijing and Shanghai but growth opportunities in cities most people don't know the names of. You can fly to them from Paris and Amsterdam and even Helsinki, and yet we're trying to convince ourselves that this is an opportunity for the UK. It's not, because we can't connect. Longer-term it's going to have real consequences for the UK."

On Friday IAG announced an operating loss of €249m (£200m) for the first quarter of 2012, compared with a €102m loss for the same period last year. Walsh said the "underlying performance was pretty good" but there had been a massive increase in the fuel bill, up 25% to €1.4bn.

He admitted that Iberia's operating performance was poor, but said long-term the Spanish airline would not drag down its merged partner British Airways. "Long-term, the economic situation in Spain will be difficult but will improve, and the restructuring we're doing ourselves in Iberia will benefit the business."

Walsh said arbitration should mean no imminent repeat of strikes by Iberia pilots that hit IAG profits. He anticipated that a restructured bmi, whose purchase by IAG from Lufthansa was cleared last month, would be profitable by 2014. "We've got a big job to do – the scale of losses were huge. But we know what we need to do."

He held out little hope for bmibaby, however, despite ongoing talks and the sale of the other bmi airline, bmi Regional, this week. "We're talking to people and actively seeking a buyer, but I'm not confident of our ability to sell," Walsh said. The airline faces closure by September.

Shell shares up after Qatar wealth fund buys stake

Doha, Qatar. Shell shares are up after Qatar has bought a stake. Photograph: Alan Copson/Getty Images

A sovereign wealth fund from the oil-rich Gulf state of Qatar has added Shell to its growing roster of western investments by buying a holding in the company.

Shares in Shell were up by nearly 1% amid further speculation that the Middle East state was in "very advanced talks" to buy an even bigger stake – as much as 3%-5%.

"We are delighted to welcome the Qatar Investment Authority (QIA) as a long-term and major shareholder in Shell, particularly given our excellent strategic relationship with the Qatari state," said a Shell spokeswoman.

The Anglo-Dutch company declined to say what the size of the QIA holding was but stock exchange rules meant any stake over 3% would automatically trigger a public statement to the stock exchange.

The Middle East Economic Survey reported that Qatar's sovereign wealth fund was in very advanced talks to buy a holding of up to a 5%, which would make it the biggest single investor.

It also reported the Qataris were negotiating to buy a stake in Italy's major oil company, ENI, while the Gulf state recently took a 3% holding in French energy group, Total.

Qatar with its small population and huge hydrocarbon reserves is benefiting enormously from the historically high global oil price.

The Qatar Investment Authority has also been active recently buying into London-listed miner, Xstrata, as well as Barclays Bank.

Shell already has a close working relationship with the Gulf state because it operates the enormous Pearl liquefied natural gas project in that country.

Avon in ding-dong battle over its future

Avon calling for help: the company's first-quarter profits failed to reach even analysts' lower expectations. Photograph: Avon/PA

There's a bad smell hanging around Avon's New York headquarters and it's not a waft of its £8-a-bottle perfume Scentini Nights.

It's more likely to be Celine Dion's Pure Brilliance, one of the many celebrity scents churned out by mass market perfume maker Coty. Coty is stalking the care-worn make-up giant Avon, and is now ratcheting up the pressure by dangling a new $10.7bn (£6.6bn) bid before shareholders.

Last week Coty signed up the veteran investor Warren Buffett, who has joined its large roster of celebrities including Beyoncé, Sarah Jessica Parker and Kate Moss. However, rather than lending his name to an aftershave, Buffett, one of the world's richest men, is putting some of his financial muscle into the deal.

The offer was an improvement on last month's gambit of $10bn. At that time Avon used the line of defence its 6.4 million sales people know all too well, slamming the door in Coty's face.

But the higher bid makes it harder for Avon's new management team, led by Sheri McCoy, the respected Johnson & Johnson executive parachuted into the top job last month, to rebuff Coty's attentions. She is frantically drawing up a turnaround plan but her cause wasn't helped by the poor first-quarter results she inherited, with profits of $26.5m – far below the $143.6m recorded a year ago - and adrift of the numbers expected by analysts.

The revised offer of $24.75 a share, up from April's offer of $23.25, was set out in a letter to the Avon board from the Coty chairman, Bart Becht, which was made public on Thursday. Becht is the former chief executive of UK household goods giant Reckitt Benckiser.

Best known for taking home a £91m pay package in 2009, Bart is not a man who takes no for an answer; he has sidestepped the board by appealing directly to Avon investors, hosting a call with more than 200 shareholders, who speak for well over half the company.

The battle has shone a light on the often overlooked business of selling products door-to-door, which is still surprisingly potent.

Avon, listed on the New York stock exchange, is perhaps best known in the UK for its "ding dong, Avon calling" adverts of the 1950s and 1960s, but its door-to-door selling model has not gone out of fashion and is an extremely effective way of reaching consumers in markets such as Brazil – which is the prize Coty is seeking.

Brazil is the third largest beauty market behind the US and Japan, according to Euromonitor, and is a battleground for cosmetics groups. Crucially, direct selling accounts for almost 30% of this booming market. Vivienne Rudd, head of beauty research at Mintel, explains: "The retail structure in Brazil isn't sufficiently developed yet for the beauty industry, so direct sales is a much more valuable model."

Avon's former chief executive Andrea Jung mounted a hugely successful push into Brazil, which is now its largest market, accounting for more than 20% of sales. But it slipped up there at the end of last year when a disaster resulted in lost orders, upsetting its sales reps and customers.

It also appears to have made other mistakes. For two years, Avon has been conducting an internal investigation into allegations that its staff bribed foreign officials in China and Latin America. Now it is being investigated under the US foreign corrupt practices act and could face huge fines. The scrutiny, combined with the company's deteriorating financial performance, eventually claimed the scalp of Jung, who resigned in December after 12 years at the helm.

Coty is said to have asked Buffett's permission to name him in order to send a message to Avon's board and investors that they were serious. At the last count, Buffett's Berkshire Hathaway was sitting on a $37.8bn cash pile, but the investment guru is not the only rich man in the room. Coty is owned by Germany's billionaire Reimann family through its investment company JAB Holdings. The mainstay of JAB's portfolio is a large stake in Reckitt and this week it sold roughly a third of its 15.5% holding, adding more than £1bn to the Avon warchest.

Rudd, however, believes that Coty – which has given the Avon board until Monday to respond to its new offer – does not hold all the cards. "L'Oréal has been rumoured to be interested in Avon and/or another direct seller," she says. "This is small change for L'Oréal, which is part-owned by Nestlé. There could be other companies that could gazump Coty."

Court hears of Tony Blair's role in friend's hotels bid

Patrick McKillen at the high court. Photograph: Ian Nicholson/PA

Tony Blair brokered a funding agreement between the Qatari royal family and an Irish property investor in a deal to buy three of London's most prestigious hotels, a court has heard.

The former prime minister gave free advice to friend and businessman Patrick McKillen, who was trying to buy a majority stake in the capital's famous Claridge's, Berkeley and Connaught hotels.

In 2010 Blair also asked the then City minister, Lord Myners, to lobby on behalf of McKillen in a bid to avoid the company's £660m debt falling into the Irish government's toxic debt pile.

Blair personally persuaded the Qatari emir, Sheikh Hamad, to contact McKillen, who was seeking £70m to buy a controlling stake in Maybourne Hotel Group, from billionaires David and Frederick Barclay.

Emails between McKillen's staff and Tony Blair Associates reveal the ex-prime minister's firm was willing to approach leaders in Abu Dhabi, Qatar, Kuwait and Oman in the search for finance.

Blair's former chief of staff, Jonathan Powell, was also willing to offer his help, according to documents.

It led to a close relationship between Blair's firm and McKillen, with the businessman and former PM's representatives meeting nearly every week.

The high court in London heard that the colourful Belfast-born businessman met Sheikh Hamad's son Sheikh Jassim in the lobby of Claridge's to discuss a possible investment.

He said: "During the meeting Sheik Jassim said that Tony Blair and his father [Sheikh Hamed] had been doing business in Doha and the issue of Maybourne came up. Tony Blair had suggested that they should make contact with Paddy McKillen."

He denied the Qatari deal was done by Blair acting as his agent.

He said: "No, it came purely from a discussion in Doha between an ex head of state and head of state. I'm not sure what business they were doing but the two gentlemen are very close."

But McKillen and the Qataris fell out over the deal – the businessman called the Middle Eastern leaders "scum" – and accused them of changing the terms of their agreement. Blair then acted as an "honest broker" between the two to rekindle the deal, the court heard.

McKillen and Blair first met at the economic forum in Davos in 2006 and reconnected in 2010 through the PR guru Matthew Freud.

The hotel group was in trouble and faced the prospect of being taken over by the Irish government's toxic debt accounts. Blair was worried that this could lead to the British landmarks being sold too cheaply, leaving Irish taxpayers covering the debts.

He then suggested Lord Myners could be used to lobby for the debts to not be taken on by Ireland and help McKillen raise the necessary funds to finance the deal.

It led to the court revelation that McKillen had approached 19 investors. These included detailed discussions with the billionaire Hong Kong property tycoon Walter Kwok, recently arrested as part of a bribery investigation in the country.

Blackstone, Och-Ziff Capital Management, Morgan Stanley Real Estate Funds, Avington Financial and Global Asset Capital Europe, were among others McKillen approached.

McKillen, who owns 36% of Maybourne Hotel Group, is suing the Barclay brothers, alleging they used illegal means to seize control of the company. He claims they conspired to side-step his legal right, under a first-refusal agreement, to increase his stake to more than 50%.

He is trying to buy a 20% stake from the third owner Derek Quinlan, a former Dublin tax inspector.

The Barclays claim McKillen was not entitled to the pre-emption agreement because he did not have enough funds for the purchase.

He has been accused of having to approach "non-traditional" lenders because normal banks "wouldn't have touched a proposal like this with a bargepole".

The case continues.

British Gas owner Centrica warns of higher gas costs

Another round of household energy bill price hikes looms after Centrica warns cost of supplying gas has risen by £50 a year

Centrica warns that the trend for retail energy costs 'remains upwards'. Photograph: Anthony Devlin/PA

Senior executives at British Gas have been accused of being an "utter disgrace" after being awarded a potentially generous pay deal just as they warned that more price rises were on the way.

The attack from a member of parliament's energy and climate change committee came as a large group of shareholders voted against the remuneration report while other companies faced the latest blowback from the "shareholder spring".

Vladimir Kim, the top shareholder in the mining firm Kazakhmys, said he would step down as chairman within 12 months, a new executive pay package at oil services group Petrofac faced opposition from shareholders and a quarter of investors rejected a remuneration report at shipbroker Clarkson.

But the greatest acrimony came at Centrica, the parent group of British Gas, after it warned that it might have to increase energy bills this winter by at least £50.

John Robertson, a Glasgow MP, who sits on the energy select committee, said: "It's clear that Centrica think this is a good day to bury bad bills. The fact they chose this day to announce these price rises, when [former chief executive of News International] Rebekah Brooks is before [the] Leveson [inquiry)], shows they are an utter disgrace," he said.

"This government has to act to put an end to greedy gas companies taking hard-pressed customers for a ride. Pensioners in my constituency are only just getting over the budget, now they are hit with the prospect of rising energy bills."

Centrica's chief executive, Sam Laidlaw, and the British Gas managing director, Phil Bentley, were accused by one investor of presiding over an "arrogant" company that had been fined £2.5m for not investigating customer complaints properly.

Another shareholder asked Laidlaw whether he would hand back the bonus element of his remuneration package of nearly £4m, a question that finally triggered an impassioned defence of the chief executive by Sir Roger Carr, the Centrica chairman. "We are very fortunate to have Sam Laidlaw for this business," said Carr. "For five years he has done a remarkable job for this company and one I am very proud to be associated with."

The group pay arrangements had very high hurdles in place that had to be overcome for bonus payouts to be made, he argued, but 12% of shareholders still voted against the remuneration report when it came up for approval.

Both the Pension & Investment Research Consultant and the Association of British Insurers had raised concerns about the pay proposals.

Meanwhile in a statement British Gas said wholesale gas prices for the forthcoming winter were about 15% higher than last year and non-commodity costs – such as transportation and environment levies – could add £50 to the cost of supplying the average household this year.

SEC launches review after JP Morgan chief reveals $2bn trading loss

JP Morgan chief executive Jamie Dimon called the mistakes the result of 'bad judgment'. Photograph: Justin Lane/EPA
The US's top financial watchdog has launched a review into the disclosure JP Morgan's $2bn London trading loss.

In an interview with Fox Business, the chairman of the Securities and Exchange Commission (SEC), Mary Schapiro, said it was "safe to say that all the regulators are focused on this".

In a further blow to the embattled financial services giant, credit-rating agency Fitch downgraded the bank Friday.

The agency called the losses manageable but warned that the damage to JP Morgan's reputation could lead to another cut, unless the issue is "appropriately sized and addressed."

SEC officials are believed to be looking at accounting and disclosure issues relating to the loss at the US's largest bank, but have yet to decide whether to launch a formal investigation.

In April Jamie Dimon, the bank's chief executive, dismissed stories about trading problems in London.

This week he cited "sloppiness", "bad judgment" and "many errors" for the losses, which are expected to grow.

The news comes amid claims that US and British regulators had been in discussions with JP Morgan for almost a month about the trading group suffering the losses.

On Friday, senators pushing for greater regulation said the loss was a "textbook illustration" of why Wall Street needs more oversight.

Questions first surfaced about the London-based group, called the chief investment office, in April after reports emerged that a trader was taking large bets that distorted the market. At the time, Dimon publicly dismissed the concerns about the trading activities, calling them a "complete tempest in a teapot".

The trader, Bruno Iksil – nicknamed the London Whale for his bullish trading or Voldemort, after Harry Potter's nemesis - has so far refused to comment to the press on what went wrong.

On Thursday JP Morgan issued a surprise trading update after US markets had shut admitting it had incurred $2bn (£1.2bn) of trading losses in the past six weeks.

The bank expects to take an additional $1bn hit in the second quarter and said the losses occurred in its chief investment office, a part of the bank intended to manage risks. The suspected trading position to blame involved credit default swaps, which insure against losses when companies or governments collapse.

Dimon said: "The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There were many errors, sloppiness and bad judgment."

On Friday, law firm Finkelstein Thompson said it was investigating claims on behalf of JP Morgan shareholders regarding the trading strategy and resulting losses. The bank's shares closed at $36.95, down 9.3% Friday.

The trading loss is an embarrassment for a bank that came through the 2008 financial crisis in much better health than its peers.

It kept clear of risky investments that hurt many other banks.

The loss came in a portfolio of the complex financial instruments known as derivatives, and in a division of JP Morgan designed to help control its exposure to risk in the financial markets and invest excess money in its corporate treasury.

Bloomberg reported in April that a single JP Morgan trader was making such large trades that he was moving prices in the $10tn market.

Dimon said the losses were "somewhat related" to that story, but seemed to suggest that the problem was broader. Dimon also said the company had "acted too defensively," and should have looked into the division more closely.

The Wall Street Journal reported last month that JP Morgan had invested heavily in an index of credit-default swaps, insurance-like products that protect against default by bond issuers. Hedge funds were betting that the index would lose value, forcing JP Morgan to sell investments at a loss. The losses came in part because financial markets have been far more volatile since the end of March.

Partly because of the $2bn trading loss, JP Morgan said it expected a loss of $800m this quarter for a segment of its business known as corporate and private equity. It had planned on a profit for the segment of $200m.

The loss is expected to hurt JP Morgan's overall earnings for the second quarter, which ends on 30 June. Dimon apologised for the losses, which he said occurred since the first quarter, which ended 31 March.

"We will admit it, we will learn from it, we will fix it, and we will move on," he said.

Spanish banks to face new scrutiny as fears rise

Spanish deputy PM Soraya Saenz de Santamaria (C), economy minister Luis de Guindos Jurados (L) give a press conference at the Moncloa Palace in Madrid, on 11 May 2012. Photograph: Jaime Reina/AFP/Getty Images

Spain's government moved to quash doubts over the health of the country's banks by ordering an independent audit of assets held by the entire banking sector and a fire sale of repossessed land and homes. The banks were also told to set aside a further €30bn (£24bn) in provisions against potentially toxic property assets.

At the end of a traumatic week for Spain, prime minister Mariano Rajoy's People's party (PP) government claimed the moves would shine a bright light on what critics see as the excessively opaque world of Spanish banks.

"This reform will bring credibility and build confidence in the financial sector, increase credit flow in our country and lead to home sales at reasonable prices," said deputy prime minister Soraya Sáenz de Santamaría.

Two independent valuers will do separate audits to value Spanish bank assets over the next four months. Banks must also hive off their burgeoning stock of repossessed land and property into separately run companies for the fire sale.

The Spanish finance minister Luis de Guindos expected banks to ask for up to €15bn in extra financing from the country's restructuring fund to cover the provisions.

The €30bn is, however, below the level many analysts consider is needed by Spanish banks. Sources spoke of up to €50bn over the past few days and some Spanish economists think much more is needed.

"The figures that international analysts manage go from €50bn to €300bn," said Xavier Sala-i-Martín, a prominent Spanish economist at New York's Columbia University, in his blog before yesterday's announcement. "The policy of mergers and private recapitalisation imposed by the Bank of Spain has clearly not functioned and, by preventing banks that are bust from closing their doors, has created a series of zombie banks that neither lend nor allow others to lend and so paralyse the economy."

The measures were announced two days after the government nationalised Bankia, the country's fourth largest bank. Bankia had to be taken over after auditors had refused to sign its accounts, apparently because of discrepancies over the value of junk real estate loans and foreclosed properties.

The real estate loan portfolios of Spanish banks are a hangover from the country's property crash, when a decade-long housing bubble burst in 2008.

Yesterday's provisions, which came on top of €50bn announced in February, were to cover only loans to developers, land speculators and builders. These have turned out to be a far greater danger than mortgages taken out by ordinary Spaniards during the housing boom.

The Bank of Spain has warned that €184bn of these loans, 60% of the total, are "problematic". The new provisions take overall coverage to 45%.

"That coverage is very, very strong," said Juan José Toribio of Spain's IESE business school. "It is hard to think you can go much further."

Banks have a month to say how they will find the €30bn – required to cover loans and assets that are not currently problematic but might go sour as Spain dives into a second recession in three years.

With unemployment at 24%, austerity measures biting and house prices falling, a housing recovery is not on the horizon.

The European commission yesterday forecast that Spain would have to ramp up an already severe austerity programme to meet its pledge of slashing the deficit from 8.5% of GDP to 3% over two years. Current measures, it predicted, would leave the deficit at 6.3% next year.

De Guindos claimed taxpayers would not lose money with the latest reforms, but also said loans might eventually be turned into shares – meaning further nationalisations.

Analysts welcomed the measures, but doubted they would solve Spain's problems.

"It's a significant step in the right direction, particularly the approval of an independent audit, and provides a measure of reassurance that Spain is coming to grips with its banking troubles," said Nicholas Spiro of Spiro Sovereign Strategies.

"Spanish bank restructuring is a moving target: the deeper the economic downturn, the greater the uncertainty about the size of the sector's provisioning needs," he added. "It needs a shock-and-awe-type programme to restore confidence in Spanish banks, but this would require some form of external assistance."

Some commentators believe only the European Financial Stability Facility (EFSF) rescue fund has the firepower needed to deal with the problem.

"There is no credible way out of this without European help," said Luis Garicano, of the London School of Economics, in his blog. "We must find a way to use the EFSF to rescue our banks, rather than the country."

Shareholder spring continues as Pendragon's pay report is voted down

Two-thirds of investors reject car dealer's bonus proposals
• Three pay reports now defeated in 2012; several barely passed
• Trinity Mirror pay report only just scrapes through vote
• Discontent also expected at Centrica's meeting on Friday



Car dealer Pendragon is the third company to have its pay policy rejected by shareholders this spring. Photograph: David Cheskin/PA
The shareholder spring continued to blossom on Thursday when the remuneration report of car dealership Pendragon was voted down – the third to be rejected by shareholders this year – and media group Trinity Mirror scraped through a protest vote over pay.

In a sign that there is no let-up in the current wave of shareholder activism, other companies endured revolts on Thursday, including media group Mecom and gaming company Sportech.

The focus will now turn to Centrica, the owner of British Gas, which is preparing for a rebellion at its annual meeting on Friday, and then materials science company Cookson and online gambling group 888, which hold annual meetings next week.

Advisory body Pirc has recommended voting against every member of the Cookson board and the Association of British Insurers (ABI), whose members represent a significant group of institutional investors, has issued a "red-top" alert – which warns members of serious concerns – at Cookson and 888.

Pendragon had also been the subject of an ABI alert to investors, while Pirc had recommended voting against the pay deals. That helped trigger the hefty defeat of the remuneration report: 67% of Pendragon investors voted against, causing the firm to withdraw its attempts to increase the potential bonus for directors from 100% of their salaries to 150%.

At Trinity Mirror – where chief executive Sly Bailey had already become a victim of the shareholder spring after resigning last week – 46% of investors voted against the remuneration report while the level of protest rose to 54% if deliberate abstentions were included.

Almost a quarter of shareholders voted against the publisher's long-term incentive plan, and Jane Lighting, the former chief executive of Channel 5, who heads the remuneration committee, failed to win the backing of one in five of shareholders. Just under 15% of investors failed to back Bailey, whose £14m pay deals over 10 years have infuriated investors amid a slump in the company's market value from more than £1bn to £80m. The backlash came despite her promise to leave by the end of the year.

Pendragon's remuneration report is the third to be voted down this year. The small gold-exploration company Central Rand Gold suffered a 75% revolt against its pay policy last month while insurance company Aviva had its report voted down last week, sparking the resignation of chief executive Andrew Moss on Tuesday.

Pendragon's chairman Mike Davies, who endured an investor rebellion against his re-election to the board when 25% of shareholders voted against him, told the annual meeting there would now be consultation over pay.

"I would like, on behalf of the board, to take this opportunity to reassure all shareholders that we have taken their objections about short-term and long-term incentive plans seriously," Davies said. He promised a "full review of all remuneration policies".

Pirc has warned that Centrica's new executive pay scheme means "potentially excessive amounts could be awarded" while the ABI has also flagged up the deals for shareholders attending the annual meeting at the Queen Elizabeth II conference centre in London on Friday.

Centrica has been criticised for allowing its chief executive, Sam Laidlaw, to take home almost £4m in 2011 despite flat company earnings. Greenpeace has called for Laidlaw to hand back his bonus and other anti-nuclear protestors said they would demonstrate outside Centrica's meeting over its plans to build a new generation of reactors.

The company argues the altered remuneration policy will benefit investors as it introduces a clawback mechanism for taking back deferred bonuses under certain circumstances. The new scheme also introduces a wider list of criteria – not just financial results – that must be met for senior executives to win their bonuses.

Chairman Sir Roger Carr is expected to stress that the headline figure for Laidlaw's remuneration package has been boosted by a series of payouts from various long-term incentive schemes. He will also point out that the chief executive's basic pay of £1.2m has been frozen for 2012 – as has the £681,000 salary of British Gas managing director Phil Bentley.

It is expected that up to 15% of shareholders will vote against the pay plan. Despite a clamour from protesters – and some parts of the City – for Centrica to abandon its plans to build new nuclear plants in cooperation with EDF of France, there is likely to be no pullout announced on Friday.

Lawrence Carter of Greenpeace said: "Laidlaw should hand back his bonus. And it's high time for him to bring energy bills under control by dropping increased imports of expensive and polluting gas and instead backing clean, renewable energy and energy efficiency."

Warren Buffett and Coty team up for Avon bid

Avon has a signature Beyoncé brand. Photograph: Lucas Jackson/Reuters
The battle for control of the makeup company Avon has hotted up after Warren Buffett, one of the world's richest men, said he would help finance a new $10.7bn (£6.6bn) bid from the perfume maker Coty.

The fragrance firm behind Beyoncé and Lady Gaga's signature scents has been trying to engage Avon – best known for its "Ding Dong, Avon Calling" adverts of the 1950s and 1960s – in takeover talks for several weeks. But its initial $10bn approach was batted away by the board who argued it undervalued the 126-year-old company.

Coty has made its move on an Avon in crisis. Its new chief executive, the former Johnson & Johnson executive Sheri McCoy, only joined last month, replacing the high-profile Andrea Jung. She has inherited a bulging in-tray that includes finding a solution to three years of falling profits as well as the fallout from a bribery inquiry centred on its expansion into China and Latin America. Its credit rating was recently downgraded to two steps above junk by Standard & Poor's.

The revised offer of $24.75 a share, up from April's offer of $23.25, was set out in a letter to the Avon board from the Coty chairman, Bart Becht, which was made public on Thursday. Becht is best known for running the cleaning product firm Reckitt Benckiser and the bumper pay packages he received for his efforts, which included a £91m package in 2009. Reckitt and Coty are both investments of Germany's wealthy Reimann family.

In the letter Becht said Coty was "disappointed by the current stalemate" and urged the board to open the books. The equity financing for its bid would come in part from Buffett's Berkshire Hathaway, he said, closing the letter with the warning that the offer would be withdrawn on Monday if Avon did not cooperate.

Avon and the US securities and exchange commission are probing whether executives bribed foreign officials in violation of the Foreign Corrupt Practices Act. The investigation sparked Jung's resignation in December, ending a 12-year stint that had made her the longest-serving female executive at the top of a Fortune 500 company. Avon, which has maintained that a turnaround led by McCoy will deliver better value for shareholders than a tie-up with Coty, did not reject the new offer outright, stating it would respond "in due course."

Avon is nearly three times the size of Coty with annual sales of $11.3bn in 2011 and an army of 6.5 million door-to-door sellers in more than 100 countries. The opportunistic bid would give Coty, which had a turnover of $4.1bn last year, a new route to market for its many brands which include Rimmel and nail care brand Sally Hansen.

"I don't think they will [take up the offer]", said Michael Bigger, founder of trading firm Bigger Capital, which holds Avon shares. "They know that the current bid is too cheap. Cosmetics is a great business. It deserves a premium. If I were them I would ask for $28 or more."

Music revolution hits Delhi jail

High-security prisoners prove to be captive audience at concert featuring hip-hop, Bollywood and ska

The concert was part of an effort to use music to rehabilitate prisoners. Photograph: Amit Bhargava/Corbis for the Guardian

It may not have been Johnny Cash playing Folsom prison but it was about as close as India could get: 1,000 or so prisoners, most serving long sentences for serious violent crimes, in the yard of Tihar, Delhi's high-security prison, with a stage, a sound system, a shiny pink-and-white marquee for dignitaries, soft drinks and biscuits.

Bollywood numbers belted out by the jail band, a hip-hop collective and the Indian capital's best-known (indeed only) ska outfit provided the entertainment. The concert, the first of its kind, was part of a new initiative by local prison authorities to use music to rehabilitate hardened prisoners.

"The only other thing we had was a concert of classical Bengali music. This is the first time we are trying something western," said Neeraj Kumar, the director general of Delhi's prisons and the man ultimately responsible for 12,000 prisoners.

Kumar explained he wanted music to be an essential part of the prison routine. Over the past year, music rooms equipped with instruments have been set up in all 10 of the city's jails. A Tihar talent competition has been launched. "We've seen an amazing difference," he said. "We had one inmate who was repeatedly suicidal. But the music changed all that. We could take him out of fetters. There are many such stories."

Though Indian prisons have a reputation for overcrowding and violence, many governors have introduced innovative measures to teach prisoners skills, occupy their days or to keep families together. The women's wing at Tihar has a creche and children under six can stay with their mothers in prison.

One prison in the southern Andhra Pradesh state recently announced plans to open its own call centre, hoping to prepare prisoners for jobs in the boom local industry. Penal experts in India say prisons across the country vary but are largely free of the systematic brutality practised during police interrogations, for example.

The prisoners' enthusiasm was evident from the moment the SlumGods – the hip-hop group formed of local artists and boys from Delhi's rundown, overcrowded Khirki neighbourhood and the famous Dharavi district in Mumbai – took to the stage.

"Hip-hop has a long history in India," said He Ra, who runs SlumGods and an NGO that introduces music to disadvantaged teenagers. "It goes back to when local versions of foreign films like Breakdance came out in the 1980s and became popular in the slums."

The youngest performer was Milan Rehman, 12, who had risked his parent's wrath to perform. "My mother told me not to go to Tihar," he said. "But why shouldn't I go? I told her it's a good opportunity."

For Avinash, a convict serving a 10-year sentence for murder, any music is a welcome break from the prison routine. "I like more Hollywood and Bollywood music but am very open-minded. I like to dance too. It is just a shame there are no ladies," he said.

Raja, convicted of rape four years ago, and Mohit, who is serving his fifth sentence for aggravated robbery, both said they welcomed anything that made time pass faster.

Prison guards were not expecting any trouble. Prisoners from the highest-security wing – mainly convicted terrorists – were led to the front and sat on the floor unshackled near a mural showing Buddha meditating and beneath a slogan reading: "It is better to light a candle than to curse the darkness".

A rap from the teenagers of SlumGods – "What am I worth when the police and the politicians have all the money" – got a cheer. If the band, whose name is a play on the title of the Oscar-winning film Slumdog Millionaire, met with a relatively muted reception, the crowd warmed up when the prison band, the Living Souls, ran through half a dozen classic Bollywood numbers.

First singly, then in pairs, and finally in groups, men broke out of the packed crowd to dance. By the time the Ska Vengers started their set, as the shadows began to lengthen and the white-uniformed servants ferrying tea to the "VIPs" began to tire, the robbers, murderers, rapists, terrorists and "under trials", who wait often for years for their cases to be heard, were in full cry.

Versions of hits from the streets of north London in the late 1970s were met with an enthusiastic, if slightly bemused response, but it was a series of dub and reggae classics and then a Hindi-language hippy-era psychedelic anthem Dum Maro Dum, ("toke, take a toke") that finally led to guards stepping in to usher frenzied dancers away from the stage.

Then, minutes after the last notes had died away, the prison yard was empty again.