Consumer borrowing rises
Bank of England (BoE) data shows that there was a rise in demand for unsecured lending, which is driven by borrowing on credit cards and through personal loans, over the three months to June. The BoE's quarterly survey of banks and building societies showed a positive net balance of 32 when lenders were asked whether demand for unsecured loans was on the rise and a balance of 33 when they were asked whether credit card spending had risen over the period. However, banks predicted that the cost-of-living crisis will drive both figures down. Consumers have also been struggling to keep up with rising household costs, with lenders also reporting a rise in default rates. Mortgage demand also continued to rise through the second quarter, although this is expected to cool in the following quarter. Mark Harris, chief executive of mortgage broker SPF Private Clients, said lenders had absorbed some of the costs of borrowing amid rapid interest rate rises. “Remortgaging activity slightly decreased, which is surprising as many borrowers have been keen to secure fixed rates in the face of rising interest rates,” he added.
Saporta: BoE may force banks to use buffers in a crisis
Victoria Saporta, the Bank of England's executive director for prudential policy, says the Bank may oblige banks to tap their capital buffer and stop paying dividends in a crisis to avoid a vacuum in lending. She suggested that in times of crisis, the Bank could force all banks to release their capital conservation buffer at the same time – with this coming alongside a ban on distributions. Ms Saporta said: “The regulatory messages in support of liquidity buffer usability communicated before and during the pandemic were on their own insufficient to address banks' reluctance to use their liquid assets.” “One way to proceed would be to learn from our experience with capital buffers," she said, adding there were "no silver bullets".
Monzo losses narrow
Monzo increased revenues to £154m in the 12 months ending in February, with this up 92% on the year before. Monzo was able to narrow its losses from £131m to £119m and said it had added a million customers to its app. Monzo had £3.1bn in cash and balances at its year end, a slight increase on the £3bn it had the previous year. It also increased its treasury investments to £1.7bn, up from £376m. CEO TS Anil said the company was still losing money because it was "investing in opportunities," adding: "It is easy to burn a bunch of cash, but we are investing wisely." Mr Anil added that Monzo is considering launching an investment management service that would see it challenging rivals such as Revolut.
Barclays seeking Chinese banking partner
Barclays is on the hunt for a banking partner as it looks to enter the Chinese asset management market. The British lender, which pulled back from Asia six years ago, is aiming to establish an asset management joint venture in China with a local lender, as part of the firm’s wider plans to push into the world’s second-largest economy. The joint venture will be set up via its Barclays Investment Managers unit, which currently has operations in Europe and Japan.
Morgan Stanley and JPMorgan fall short of expectations
Morgan Stanley and JPMorgan’s Q2 results failed to meet analyst expectations, with inflation and interest rate rises hitting the US banks. Profits at Morgan Stanley fell 30% in the second quarter, with investment banking revenue down 55% to $1.07bn. Advisory revenue fell 9.9% while debt underwriting revenue dropped 49%. These declines were partially offset by its fixed income arm, were sales were up 49% to $2.5bn. JPMorgan reported investment banking revenue of $1.35bn, with this more than $500m lower than expectations. However, equities trading revenue of $3.08bn surpassed predictions.
Campaigners call for action over financial scams
The Transparency Taskforce has urged MPs to tackle financial scams. The campaign group yesterday presented its recommendations in parliament, drawing from a report which accuses the Financial Conduct Authority’s (FCA) current regulatory framework of placing “a fig-leaf on malpractice” and encourages organisations to see fines and regulatory obligations as “merely a cost of doing business.” The report makes three recommendations, calling for the introduction of a duty of care for consumers that ensures the victim has the right to bring civil action against firms for breach of the consumer duty. It also proposes a change in governance of the FCA, asking for less Treasury involvement and more independence. The third recommendation proposes a more formalised and holistic redress scheme for regulatory failure. Lead campaigner Andy Agathangelou said the report is “a clarion call to our elected representatives to fully explore and evaluate the many opportunities to remedy the failings in the financial sector that are available to them, here and now, within the current parliamentary session." The report includes endorsements from four MPs, including Stephen Timms, the chair of the Work and Pensions Select Committee.
Rathi: FCA pursuing root and branch overhaul
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), says the City watchdog is undergoing a root and branch overhaul to “mitigate the shocks” that the financial services sector is set to face. Speaking at the Peterson Institute for International Economics in the US, he said the FCA is carrying out reform that will enable it to “address the threats, mitigate the shocks, and embrace opportunities”.
UK approved fewer new drugs than EU and US after Brexit
The UK approved fewer new medicines than the EU and the US in 2021, the first year after the end of the Brexit transition period. Research from Imperial College London shows that only 35 new drugs were approved for use in the UK last year, compared with 40 approvals in the EU and 52 in the US. James Barlow, a professor of healthcare technology and innovation management at Imperial College Business School, said Brexit has created another layer of bureaucracy for drugmakers seeking regulatory consent for new medicines, saying: “It’s more difficult, more time-consuming and more expensive – and for a smaller market.” On the lower number of drug approvals in the UK last year, he said it was “too early to tell if it’s a post-Brexit blip or longer trend”, adding that “if it’s actually a trend, it’s a trend going in the wrong direction”.
Private rents reach record highs
Average private rents in Britain have hit record highs, jumping by more than 20% in some areas. Data from Rightmove shows that the average advertised rent outside London is 11.8% higher than a year ago, while in the capital it is up by 15.8%. Between April 1 and June 39, the average advertised asking rent outside London hit a record of £1,126 per calendar month. This figure is up 19% – or £177 – in the two years since the pandemic started. London has seen a new record average advertised rent of £2,257. While London saw an annual rate of growth of 15.8%, Manchester topped the ranking of rental price hotspots, with the average asking rent climbing 23.4% in a year, hitting £1,127 in Q2.
Deposit-free mortgage launched
Beverley Building Society has launched a 100% loan-to-value mortgage for first-time buyers — but a family member needs to put up their house as collateral instead of a deposit. The three-year deal has a variable rate of 2.75%, and a product fee of £800. You will also need an independent valuation of the property and in some cases the property being offered as collateral too. Beverley would secure 20% of the price of the property being purchased against the family member's home for eight years. It can be released earlier if the first-time buyer pays off enough to reach 20% equity.
IMF warns of recession risk as outlook ‘darkens significantly’
Kristalina Georgieva, managing director of the International Monetary Fund (IMF), says the outlook for the global economy has “darkened significantly” in recent months. Pointing to the cost-of-living crisis and increasing risk of recession within the next 12 months, she said the situation is “only getting worse.” Ms Georgieva said the outlook “remains extremely uncertain,” suggesting that further disruption in the natural gas supply to Europe could “plunge many economies into recession and trigger a global energy crisis.” She went on to warn that it is “going to be a tough 2022 – and possibly an even tougher 2023, with increased risk of recession.”
Ramsden: More rate rises likely
Bank of England deputy governor Dave Ramsden says interest rates are "very likely to have to go up further" to prevent persistently high inflation. He said: “We will have to respond to whatever happens but we want people to understand that we're not going to let high inflation become sustained and get out of control like it did in the 70s and 80s.”
Companies reined in deal-making during the first half of 2022 amid concerns over inflation, interest rate hikes and a recession. Figures from Refinitiv show that companies announced $2.2trn worth of buyout deals in the first half of the year, with this representing a 21% drop from a year earlier. The number of deals also dipped, falling 17%.