The Royal Mail flotation has taken another twist today, with the news that a leading activist hedge fund has amassed a 5% stake.

A regulatory filing from Royal Mail this afternoon showed that The Children’s Investment Fund now owns more than 58 million of the Royal Mail’s 1bn shares, giving it a 5.8% stake (thus triggering the announcement).

This appears to make TCI the biggest private shareholder (the government was left with more than 30% of the stock after the float.)

TCI, based in London, is well-known for taking stakes in companies and agitating for change, so Royal Mail’s management could face a rough ride.

It was founded a decade ago by manager and philanthropist Chris Hohn, who co-founded the Children’s Investment Fund Foundation (CIFF) charity with his wife to help under-privileged children in the developing world.

Business secretary Vince Cable had promised that responsible, long-term investors would be favoured in the allocation process. It’s not clear how many shares TCI received in the float, and how many it has mopped up since.

Shares in Royal Mail have dropped today, down 1% at present to 492p. They floated at 330p.

Wall Street has opened a little higher on the back of the US jobs data, with the Dow Jones up 28 points, or 0.17%, in early trading. The S&P 500 and Nasdaq are also gaining a little.

Back to the UK briefly — the bosses of Britain’s largest energy firms are being hauled before MPs to explain the recent rash of price hikes, after tariffs jumped by upwards of 8%.

Big six energy firms to face MPs following price hikes

Wall Street correspondent Dominic Rushe flags up one cheerful note — the drop in the US jobless rate, to 7.2%, was caused by more people getting jobs rather than simply dropping out of the labour market altogether.

Dom writes:

September’s fall appears to be driven by employment growth, one bright spark in an otherwise lacklustre report. The largest job gains were in construction, wholesale trade, and transportation and warehousing.

Employers have now added an average of 185,000 positions each month over the last year as of September, but gains have slowed in recent months. The number of long-term unemployed (those jobless for 27 weeks or more) has remained high and was little changed in September at 4.1 million. These individuals accounted for 36.9% of the unemployed. The unemployment rates for teenagers (21.4%), black people (12.9%) and Hispanics (9%) also remained high and unchanged.

Stock markets in Europe have pushed higher on the back of the disappointing jobs data from America.

The FTSE 100 is up 30 points at 6684, a gain of 0.46%, having hit the highest intraday level since the start of August.

Germany’s DAX is up another 0.8% and heading for yet another record high.

The prospect of yet more Fed stimulus is getting traders drooling, even though the real message from today’s Non-Farm Payroll is that the US labour market is weak.

Barclays also reckons the Fed will keep stimulating for several more months…

Stock markets will climb higher by Christmas as the Federal Reserve keeps pumping money into the US economy, predicts Joe Rundle, head of trading at ETX Capital.

Rundle reckons the Fed might not start tapering its bond buying programme until the middle of next year:

Jobs generation remains weak, other facets of the US economy are also suffering from weakness – yesterday’s weaker existing home sales report for example and more importantly, fiscal uncertainty in the US remains. Lawmakers will have to re-address the debt limit and funding for the Treasury early next year; this makes the Fed’s job much harder in terms of an exit plan for QE.

At the same time, if the trigger is not pulled by current head Ben Bernanke before he leaves at the end of 2013, it will be the duty of the incoming Fed President who could be Janet Yellen – an endorser of loose monetary policies [low interest rates and accommodative easing tools], otherwise known as a dove in the market.

…Most likely it will be mid-2014 or late before we see the first tapering shot fired. Risk assets are to remain well supported through to year-end; S&P500 to hit 1810 by end of 2013, FTSE100 to hit 6850.

This graph also shows how job creation in America remains subdued:

The weak US jobs report shows that the Federal Reserve was quite right last month, when it decided not to start to ‘taper’ (or slow) its programme of buying $85bn of government bonds and mortgage debt.

Economist Justin Wolfers flags up that US job creation is faltering – an average of just 143, 000 new hires were made each month between July and September, compared to 209,000 per month at the end of 2012.

David Nicholls, alliance manager at UKForex, agrees that the US labour markets looks too weak for the Fed to start tapering its bond-purchase scheme:

Today’s non-farm payroll data (148K vs 182K expected) is another nail in the coffin for tapering anytime this year.

The numbers just aren’t supporting an immediate move by the Fed, and the dollar is softening further as a result.

It’s also difficult to see that October’s data is going to be any more positive given the recent government shut down. We expect data to continue to support a delayed tapering decision this year – and that will weigh heavily on the US dollar.

Our first take on the Non-Farm Payroll is here:

The US unemployment rate remained at the lowest level since 2008 in September, according to figures released on Tuesday that were delayed by the federal government shutdown.

According to the Bureau of Labor Statistics, the unemployment rate remained “little changed” at 7.2%, with the economy adding 148,000 jobs. But the US economic recovery remains fragile, with employers adding jobs at a slower rate than the previous month.

US jobless rate ‘little changed’ at 7.2% as recovery stays on sluggish pace

The early reaction from analysts and economists is that September’s non-farm payroll report means the Fed will keep stimulating the US economy at its current rate until 2014.

An increase of just 148,000 new jobs is quite a miss compared to the consensus of 180,000 (some bullish analysts expected to see a >200,000 reading).

Experts on Bloomberg TV are agreed that this is a bad jobs report, particularly in the private sector where just 126,000 new jobs were created in September.

This is not what the Federal Reserve is looking to see before it starts to ease its $85bn/month quantitative easing programme, one suggests.

The US labour force participation rate is unchanged, at 63.2%.

Previous US unemployment data has been revised, too.

The Bureau of Labour Statistics says 193,000 new jobs were created in August, up from 169,000 new jobs.

But July’s data has been downgraded, to 89,000 new jobs from 104,000.

City forecasts for non-farm payroll vary considerably, as ever – the consensus is that 180,000 new jobs were created in America last month, leaving the jobless rate unchanged at 7.3%.

After more than two hours of grilling, Andrew Tyrie releases Peter Marks from the Thatcher Room.

It’s not been an easy morning for you, or anyone else, Tyrie remarks. But a lot of people have lost money out there, not just bond holders, so it’s important that the session took place.

Any final words?

Marks, who can’t have enjoyed the session one little bit (the accusation of selective amnesia was probably the low point), says that he’s “spent his life working for the Co-op”. What has happened is a tragedy for the company, customers, and him personally.

However, despite everything, Marks believes the Co-operative Group (whose history dates back to the Rochdale pioneers of the 19th century), still has “a good future”.

John Thurso MP is asking if “mutuals” have a future – was the Co-op’s Bank’s mutual status responsible for its problems, or was it a straightforward case of bad management?

Peter Marks doesn’t believe it’s mutual status was the cause, except it couldn’t raise capital as easily as a PLC (which could tap the equity markets for funds).

So is the model viable, Thurso asks?

Marks: it’s very hard for a mutual to be a “real, serious competitor” in the UK banking market, which he dubs a “high volume, low margin business”, subject to costly regulation and high capital reserve requirements.

Brooks Newmark becomes the latest MP to question Peter Marks, and to question his claim that he is not responsible for the blunders that caused Co-op’s present problems.

He dismisses Marks argument that he was only a non-executive director of Co-op Bank at the time of the Britannia merger, saying he cannot “absolve responsibility” for mistakes.

Newmark accuses Marks of being in “complete denial”:

Newmark is also homing in on KPMG, who advised Co-op on both the Lloyds branch deal and the takeover of Britannia building society (details here). Did they botch the job and give ‘bad advice’?

Marks argues that the advice was “right at the time”, and again cites Britain’s economic problems (an excuse which the committee don’t appear impressed with)

Marks suggests the Co-op should get some credit for walking away from the deal to buy hundreds of branches of Lloyds.

We’re back on the issue of Co-op’s structure, with Peter Marks repeating his earlier warning that the Group is spread over too many areas – from supermarkets to travel via funerals and legal services.

If I failed at anything, it was not getting the Group board to heed my warnings, Marks says.

Andrew Tyrie pounces. If we look for the documentary evidence of these warnings, will we find it?

Probably not, Marks concedes.

No evidence of “your devastating critique”?

Marks suggests not, but is sure his former colleagues will remember….

Peter Marks blames the City regulators for ‘moving the goalposts’ on capital reserves, triggering the £1.5bn capital shortfall at the Bank.

He also insists that the Co-operative Group took seriously the warnings from Andrew Bailey, the Bank of England’s top regulator, about capital reserves and risk management.

Asked about who took the decision to abandon the bid for Lloyds branches, Marks calls it a “collective decision”

Of the Group or the Bank?

Both, Marks replies.

Jesse Norman MP asks Marks if he could face criminal charges for acting as a ‘shadow executive chairman’.

Why? Because Marks says he was a driving force behind the failed bid for Lloyds branches despite not being the Co-op Bank CEO.

Marks says not, insisting the Co-op Group board unanimously voted to look at this deal, as did the board of the Bank.

Andrew Tyrie, the highly respected chairman of the Treasury committee, is asking a lot of follow-up questions. Not a good sign….

Now it’s David Ruffley MP’s turn.

He warns Peter Marks that his “selective amnesia” had better stop, and demands better answers about when the former Group boss became aware of Lloyds Banking Group’s concerns about its capital weakness

Were there really no alarm bells ringing a year ago?

Marks insists that it only became clear at the start of this year that there was a capital shortfall (which led to the £1.5bn capital raising exercise, in which Co-op Group will only hold 30% of its Bank).

A reminder: the session is being streamed live here.

Mark BarnierGarnier MP tells Peter Marks that Lloyds had become aware a year ago that the Co-op Bank was undercapitalised. When did he learn this?

Marks says can’t remember the details of discussions over capital shortfalls.

Barnier is quite surprised. Surely you’d remember when you first learned that your big deal started to crash? 

Marks replies that the deal wasn’t crashing at that stage.

Marks also denies shirking responsibility for Co-op Bank’s woes, saying he was absolutely prepared to take the blame for other deals that he was fully involved in. The Lloyds bank branch deal doesn’t fall into this area, he claims.

Andrew Tyrie questions whether ‘tragedy’ is the right term to use for Co-op’ Banks woes — surely a tragedy is something unavoidable. This mess was quite avoidable.

Marks disputes this, and agrees with the suggestion that the Co-op Bank was an “innocent victim” of the financial crisis.

Marks repeats that the Co-op Bank’s slide into the hands of two US hedge funds is a “tragedy”, but claims it could be a good thing for the wider Group.

It will force the Co-operative Group to focus on key areas and not stretch its capital, he suggests, harking back to his earlier warning that the organisation is spread too thinly.

Labour MP John Mann savages Peter Marks over the situation at Co-op Bank today, accusing Peter Marks and colleagues of being “totally out of your depth when trying to grow the Co-op so rapidly.”

That’s why two US hedge funds are taking control of the Co-op, right?

Marks replies that those two funds are only taking majority control of Co-op Bank, not the wider Group.

Marks says he helped to guide the Group through the “worst recession in living memory”.

Did you make disastrous errors, John Mann inquires:

Marks say that it’s harsh to use the word disastrous, but concedes there were certainly errors.

Treasury committee chairman Andrew Tyrie is digging down into the details of who was actually taking the decisions that led to Co-op Bank’s slide into trouble.

Marks isn’t taking individual responsibility for the failed bid for Lloyd’s branches, saying that Neville Richardson (the Co-op’s Bank’s former) boss took most of the key decisions.

Tyrie says it looks like another example of “everyone collectively moving forward together, and no-one actually running it”.

He asks Marks if he’s read the Banking Standards Commission’s report into the sector, and Marks concedes that he hasn’t read it thoroughly.

What’s the Commission’s key recommendation?

Marks doesn’t know.

It’s that there should be individual responsibility for key decisions, Tyrie replies,.

Marks agrees that he was the ‘driving force’ behind Co-op’s bid for the Lloyds branches, calling it a “great opportunity” to deliver the scale that Bank needed.

But wasn’t it a catastrophic misjudgement, asks Jesse Norman MP ?

No, Marks says, arguing that Co-op Bank’s fundamental problem was a lack of capital. This deal would have brought much-needed capital in.

Onto the details of Co-op’s Bank’s failed bid for the branches being spun off by Lloyds (known as Project Verde)

Was Peter Marks aware of political interference with the Verde process? “Not that I’m aware of,” he replies.

Peter Marks seems reluctant to take too much blame for the Co-op Bank’s troubles, pointing out that he wasn’t personally regulated by the Financial Services Authority to run a bank.

He’s also pinned responsibility for the Britannia merger on Neville Richardson, Britannia’s chief executive at the time who became head of Co-op Bank, and former Co-operative Financial Services boss David Anderson:

The Treasury committee are trying to get a handle on exactly who to blame for Co-op’s woes.

Marks argues that ”we all have to take some degree of responsibility, including me”.

He has concedes that Co-op Bank’s “ethical reputation has been damaged” by the PPI scandal, in which it is paying out over £200m in compensation.

Co-op Bank was forced into trouble by its take-over of the Britannia Building Society in 2009, Marks agrees. With hindsight, he wouldn’t do it again.

Former Co-op chief Peter Marks went on to warn that the Co-operative Group is spread too thinly.

Marks, who stepped down in May 2013, is being asked by Andrew Tyrie about structural problems at the Group. He says:

I think there are areas of governance within the Co-operative that absolutely need to change.

So why didn’t you change then, Tyrie inquires.

Marks replied that he wasn’t on the board of the Group.

He than warns that the group, which runs supermarkets, pharmaceutical branches, funeral services, insurance and banks, is simply involved in too many different operations.

It was, and still is, stretching its capital over too many businesses, Marks added.

Charlie Bean, one of the Bank of England’s deputy governors, has urged Europe to crack on and implement banking reform.

In a wide-ranging speech to the Society of Business Economists, Bean said it was important that Europe used the window created by Mario Draghi, who he credited with saving the euro from break-up.

Bean said:

The euro area is no longer in existential crisis, in part as a result of the willingness of the European Central Bank (ECB) to take redenomination risk off the table through its Outright Monetary Transactions programme.

The countries of the euro-area periphery have also made progress in restoring
competitiveness and rebalancing the composition of demand, though there is still quite a way to go. Member states are working towards the creation of a functional banking union, which has the potential to break the link between sovereigns and banks.

And in preparation for becoming the euro-area banking supervisor, the ECB is planning a rigorous review of the quality of banks’ assets, to be followed by a set of stress tests and, if necessary, recapitalisation. Provided these carry credibility with the market, this could do much to restore confidence in the euro-area banking system.

Bean also said the UK recovery was ‘gaining traction’ (we get new GDP data on Friday), and also defended the BoE’s forward guidance (which means interest rates shouldn’t rise until the labour market improves).

Over in Luxembourg, Jean-Claude Juncker’s long grip on power could finally be slipping.

Although Juncker’s party won the most support in Sunday’s elections, it lost three seats – dropping to just 23 of the 60 seats in parliament.

Opposition parties are beginning coalition talks, as Reuters reports this morning:

Luxembourg Prime Minister Jean-Claude Juncker was facing the end of a 19-year run in power on Tuesday after the centre-right Democratic Party (DP) said it would begin coalition talks with would-be partners, the Socialists and the Greens.

Juncker’s Christian Social People’s Party (CSV) has led governments in the tiny state between France, Germany and Belgium for all but five years since World War Two, but lost three seats in an election on Sunday to leave it with just 23 in the 60-seat parliament.

That was the party’s worst showing since 1999. The Democratic Party and the Socialists both won 13 seats and the Greens six.

“We will contact them to come together tomorrow to see if there is a possibility to work together in the coming five years,” DP leader Xavier Bettel told RTL television. “It’s a realistic option.”

Juncker was a familiar face in the dark days of the eurozone crisis, as leader of the Eurogroup of finance ministers (he stepped down at the end of 2012). Now, his position as Luxembourg’s PM could be at risk…. 

Heads-up. Greek MPs will vote today on whether to withdraw funding from parties whose members face serious criminal charges – the latest step in the clampdown against the extremist Golden Dawn group.

Kathimerini explains:

Greece’s conservative-led government and leftist opposition SYRIZA have reached a common position, with the leftist party confirming last week that it will vote in favor of the bill, which has been drafted by Interior Minister Yiannis Michelakis after extensive consultation with the Parliament’s opposition parties.

Last week MPs voted by an overwhelming majority to lift the immunity of six Golden Dawn MPs, opening the way for a broadening of a criminal investigation into the ultra-right party, which is the real target of the bill being voted on on Tuesday.

Economist Shaun Richards fears Ofgem’s clampdown on energy tariffs is too late.

Downbeat news from Lufthansa has sent the German airline’s shares down almost 4% this morning.

In an unscheduled update, Lufthansa warned that restructuring costs will wipe €200m off operating profits this year, with various ‘project’ costs costing another €100m. More here.

CEO Christoph Franz has been implementing a radical shake-up of the company, cutting thousands of jobs and shifting more traffic to its budget offering, Germanwings. Analysts had expected the company to deliver operating profits of around £917m — it now says it’ll be between €600m and €700m.

A pretty mixed start to European stock market trading, with the FTSE 100 creeping higher (up 0.1%) the German DAX flat, and the French CAC down 0.2%.

The excuse is that traders are waiting for those US jobs numbers at 1.30pm BST:

Mike van Dulken of  Accendo Markets agrees, saying:

 US jobs will be the driver for a break one way of the other. Or much ado about nothing?

Asian markets had also been mixed overnight, although Australia’s A&P/ASX 200 did gain another 0.4% to a new five-year high.