Sarin's exit ruined by Vodafone warning of slowing sales

LONDON BRIEFING:WHEN Arun Sarin revealed earlier this year that he was to quit as chief executive of Vodafone he must have been confident he would be leaving the world's largest mobile phone operator on a high.

But, with his departure date now just days away, the group's shock warning of slowing sales growth has put paid to any hopes of a triumphant exit.

Sarin could only look on with horror, along with the rest of the market, as Vodafone shares collapsed by 15 per cent at one stage yesterday, slashing as much as £12 billion from its stock market value. Although the Vodafone chief executive insisted that profit forecasts would be met, he disclosed that full-year revenues would come in at the bottom end of the group's forecast range of between £39.8 billion and £40.7 billion.

Many other companies could have issued similar statements without sparking such a savage share-price reaction. But the market has long regarded Vodafone as virtually recession-proof - and it was the shattering of that perception yesterday that caused such shock among the group's followers.

Far from being immune to an economic slowdown, Vodafone is now suffering along with the rest. Although Sarin sought to reassure the market by insisting that the company remained more resilient than most, and that its expansion plans remained in place, the damage had already been done.

Even assuming that Vodafone can still manage to meet full-year profit forecasts of around £11 billion at the operating level, despite the sales slowdown, analysts now fear that this will be achieved largely through cost-cutting measures rather than any real growth.

The outlook in Spain is particularly bad, and growth is slowing in the UK and the rest of Europe.

The company has, of course, faced recessions before, but has never really experienced a global slowdown in saturated markets.

As one analyst warned, the next few quarters are "unchartered territory".

That uncertainty was reflected in the dramatic share-price plunge, which dragged down other telecoms groups throughout Europe and the rest of the world.

Although galling for Sarin, it seems a fitting end to a sometimes tumultuous five years at the top for the Indian-born executive.

During his reign he saw off a massive shareholder revolt over strategy, turning the business round and winning renewed respect in the City of London.

And there are some compensations - he is expected to walk away from the group with a "golden goodbye" worth as much as £25 million.

Now the task of steering Vodafone through more troubled times falls to his deputy, Vittorio Colao, who takes over as chief executive when Sarin leaves next Tuesday.

After yesterday, Colao must be aware that he is facing an even bigger challenge than he might have imagined when his appointment was announced two months ago.

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Halifax Bank of Scotland - or Hflop as it's now been nicknamed in the City of London - has raised the £4 billion it said it needed to repair the ravages of the credit crunch. But at what price has the extra funds come?

The HBOS cash-call has turned out to be one of the biggest flops in corporate history, with the scale of the disaster surpassing even the most pessimistic expectations in the City.

Holders of more than 90 per cent of the bank's shares shunned the rights issue, leaving the underwriters - Morgan Stanley and Dresdner Kleinwort - with a huge rump of shares to shift.

Thus on Monday the City was treated to the rare sight of investment banks breaking out into a sweat to earn their huge underwriting fees, which have not been disclosed but are thought to be in the region of £90 million.

They made a decent enough job of it under the circumstances, finding buyers for £1.2 billion worth of the unwanted shares - and including a nifty, but not illegal, bout of short-selling from Morgan Stanley which could just leave it showing a profit from the fund-raising disaster.

So HBOS gets its money and the underwriters earn their fees. But it is not a happy ending. The underwriters and sub-underwriters are left with £2.5 billion of shares on their books and are nursing heavy losses.

The reputations of the bank's chief executive, Andy Hornby, and its chairman, Lord Stevenson, have also taken a severe battering from which it will take a long, long time to recover.

They will have to face their unhappy shareholders once again next week, when they present the bank's half-year results. If they have any nasties to report, they should not expect a sympathetic hearing.

• Fiona Walsh writes for theGuardian newspaper in London