A round up of some of the week’s most significant corporate events and news stories.

Insider traders sentenced in wake of Tabernula probe

A former corporate broker at Lehman Brothers and Deutsche Bank who once advised the government on its bailed-out banks landed a record four-and-a-half year sentence for insider trading this week, the culmination of a 12-week trial and an eight-year £14m investigation by the UK’s markets watchdog, writes Caroline Binham.

Martyn Dodgson was found guilty earlier this week of a single count of conspiracy to insider trade with his close friend, Andrew Hind, an “odd” technophile geek and a former finance director at Topshop. Hind received a three-and-a-half-year sentence.

Dodgson, who earned £600,000 at Deutsche in 2009, was found guilty of passing information he gleaned from his work to Hind, who would then place trades through two “prolific” day traders, Iraj Parvizi and Ben Anderson. Those two traders, along with Dodgson’s friend Andrew “Grant” Harrison, were acquitted by the jury at London’s Southwark Crown Court.

Hind kept meticulous records of the profits of the scam, labelling Dodgson “Fruit”. For his part, Hind was known as “Nob” by the traders. The nicknames were just one feature of a conspiracy that included military-grade encryption devices, Panamanian bank accounts, cash payments and pay-as-you-go mobile phones.

The case, known as Tabernula — Latin for “little tavern” — was the Financial Conduct Authority’s most complex and high-profile, made public with dawn raids across the City in 2010. It was the first time the FCA used covert recordings and surveillance in an insider-trading case. Tabernula has already netted three guilty pleas from a former hedge fund trader, an ex-equities trader, and a former broker.

● Related Lombard note: Last Chance Tavern

Clothing stores suffer weak results on strong dollar

It was a bleak winter for American retailers and spring did not bring any sun. Clouds are also hanging over the rest of the year, writes Lindsay Whipp.

A string of disappointing first-quarter earnings at companies from Gap to Nordstrom underscored the struggle facing the US’s best-known names in selling their wares, particularly clothing. Even more concerning was the lack of visibility at companies such as Macy’s for the rest of the year.

Gap issued a profit warning along with yet another month of falling sales at its three key brands, prompting Fitch to cut the company’s credit rating to junk status. Macy’s said its comparable store sales would drop 3-4 per cent this year instead of a previously estimated 1 per cent. Kohl’s first-quarter sales dropped 3.7 per cent to $3.97bn.

Even Nordstrom — whose ability to attract the younger generation of shoppers has helped it outshine rivals — disappointed, with comparable sales falling for the first time in 25 quarters. It also cut its profit forecast for the year and is expecting earnings of $2.50-$2.70 per share compared with its earlier forecast of $3.10-$3.35.

The weak earnings highlighted how consumers are increasingly expecting discounts when it comes to buying clothes, while the strong dollar has been putting off tourist spending.

However, these traditional retailers have a bigger threat to deal with in Amazon. Morgan Stanley estimates that the online behemoth is the second-largest apparel retailer after Walmart, with 7 per cent of the overall market.

● Related Lex note: US retail — in a box

VW’s pay back in spotlight

Pay at Volkswagen was back in focus this week after the German carmaker cut its annual bonus payments to staff on Friday by a third in the wake of the emissions scandal. This comes days after it emerged that the hurdles set by management to recoup their withdrawn bonuses would be easy to clear, writes Patrick McGee.

Meanwhile the German carmaker on Friday also turned to China to issue its first corporate bond since the scandal, raising Rmb2bn (€270m) by issuing three-year debt — the first time it has sold a renminbi bond.

VW widely trumpeted last month that €4.2m of management pay was being withheld because of the emissions scandal, but an analysis of the deal reveals that management can actually double the waived amount if VW shares do just moderately well.

The agreement the supervisory board reached in late April was that if VW preference shares recover 25 per cent by 2019, management receives the waived bonus back — plus share appreciation and dividends. If shares have not recovered, they receive nothing. “This will present both a risk and an incentive,” Volkswagen said.

Crucially, however, the starting point for measuring the 25 per cent rise is just €112 per preference share — the 30-day average to April 22, when VW revealed a €1.6bn net loss for last year.

The carmaker said on Friday it will pay its in-house employees a €3,950 bonus for 2015, which is down from the €5,900 that the staff received for 2014. The figure applies to the company’s in-house workers — about 120,000 people.

Before VW admitted to equipping 11m diesel cars with emissions test-cheating software, the shares had averaged €208 in 2015, peaking at €255 in April.

Christian Strenger, a senior governance expert, called the starting point of €112 “unjustifiably low” as the share price at the time of the board decision was already €126.

“For the doubling up of the postponed bonus, which is hard to detect in the annual report, the minimum hurdle should be at least €196. This was average share price of what investors paid in good faith in 2014 and 2015,” he added. “Otherwise it’s ludicrous and would contravene German company law.”

Moreover, the terms stipulate that management can double the amount withheld — if shares rise 50 per cent, to €168, according to Mr Strenger’s calculations.

Meanwhile, VW renminbi bond issuance on Friday came as latest car sales figures show VW continuing to lose market share in Europe. The carmaker fell to its lowest market share in Europe in four years, after rivals notched up faster sales growth between January and April.

● Related Inside Business column: The madness of executive pay

● In depth page: VW Emissions Scandal

Aramco to step up output as it pushes ahead with IPO

Saudi Aramco, the world’s largest oil production company, will increase its output in 2016 as demand remains robust, according to the state oil company’s chief executive Amin Nasser, writes Anjli Raval.

“Whatever the call on Saudi Aramco, we will meet it,” Mr Nasser said, in some of the first comments since a government reshuffle at the weekend removed veteran oil minister Ali al-Naimi.

“There will always be a need for additional production. Production will increase upward in 2016,” he said during a media visit to the headquarters of the state oil company in Dhahran.

Saudi Aramco is embarking on global expansion just as it pushes ahead with what could be the world’s largest stock market listing yet.

The company is looking to secure more customers by establishing refining joint ventures in countries where oil demand is still growing, Mr Nasser said. These include plans for operations in the US, India, China, Indonesia and Vietnam.

Mr Nasser said Saudi Aramco was working under the assumption that it would initially sell less than 5 per cent of the company and was studying options including a dual listing in Saudi Arabia and overseas.

He added that a “huge” team was working on plans for the initial public offering that would be submitted to the Saudi Aramco Supreme Council, chaired by the kingdom’s deputy crown prince Mohammed bin Salman.

Prince Mohammed, who has emerged as power behind the throne in Saudi Arabia, has pushed for the public offering of Saudi Aramco and believes the company could be valued at more than $2tn.

● Related column: Saudi Arabia is a kingdom on the cusp of transformation

● Lombard column: Saudi Aramco — more mirage than IPO

Rare stumble for Disney as ESPN drags on share price

Not even a best-ever performance by its movie studio could stop Walt Disney shares from taking a tumble this week, writes Matthew Garrahan.

The media group scored at the box office in the first quarter with Star Wars: The Force Awakens and Zootopia but lingering concerns about growth at ESPN, its powerhouse sports cable network, knocked 6 per cent off the shares.

The company missed Wall Street analyst estimates for the first time in five years, a rare stumble for the world’s biggest media company, which does not provide profit guidance but has met or beat analysts’ earnings-per-share expectations every quarter since 2011.

Disney revealed on Tuesday that ESPN subscriber numbers had fallen and that advertising revenues had decreased because of the network airing fewer college football playoff games.

It also recorded a $147m charge for the closure of Infinity, a video console game and related toy line that it launched in 2013 and cost more than $100m to develop.

However, its movie studio has enjoyed an unprecedented run, thanks to a pipeline of hits from its Marvel, Pixar and Lucasfilm divisions. It landed another hit this month with the release of Captain America: Civil War following April’s release of The Jungle Book. It has Finding Dory, a sequel to Finding Nemo, to come in the summer.

No update was given on the most pressing news facing shareholders: Disney’s succession plan. Bob Iger, chief executive for the past decade, is set to retire in 2018 and Tom Staggs, his most likely internal successor, stepped down as chief operating officer in the quarter after failing to receive assurances from the board that he would get the top job.

Mr Iger told investors on an earnings call that the board was “very actively engaged” in identifying a successor. He is due to retire in June 2018 and said he did not “currently have any plans to extend” his contract beyond that date.

Brussels ruling deals blow to Hutchison over O2 deal

Brussels this week blocked the £10.5bn acquisition of O2 in the UK by CK Hutchison in a landmark ruling that puts in doubt tens of billions of similar telecoms deals across Europe, writes Dan Thomas.

Margrethe Vestager, the competition commissioner, ruled the acquisition would risk raising prices and reducing choice for mobile users in Britain, while also flagging concerns about the impact on mobile infrastructure.

CK Hutchison, which had wanted to merge Telefonica’s business with Three to create the largest mobile operator in the UK, said that it would appeal against the decision. The group is also pursuing a similar merger in Italy with VimpelCom’s Wind, which may now also face higher hurdles in Brussels.

The ruling marked the first time that the commission has formally blocked a telecoms merger in a major European market after waving through similar deals in Germany and Austria.

Brussels competition officials baulked at the prospect of losing one of the four mobile operators in the market. Hutchison had offered concessions — including letting other groups use its network — but competition chiefs wanted to create a new fourth competitor.

Telefónica, which wanted to sell O2 in the UK to cut debt and pay its dividend, is already considering a sale of O2 to another group alongside a potential flotation.

Liberty Global has registered an interest, while private equity groups have also started work on the buyout alongside former EE chief executive Tom Alexander.

On Friday, Moody’s changed the outlook on Telefónica’s Baa2 rating to negative from stable following the decision to block the sale, citing competition, innovation and quality concerns.

● Related Lombard column: Vestager sends Hutchison-O2 deal to Valhalla
● FT View: Vestager makes the right call on Three and O2