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Daily News Roundup: Friday, 15th October 2021

Posted: 15th October 2021


Loan defaults likely to rise, say lenders

A Bank of England survey of lenders suggests that more households are expected to have defaulted on mortgages and other loans by the end of November. The Bank’s credit conditions survey asks banks and building societies to detail the climate over the previous quarter and what they expect in the next three months. While mortgage default rates had decreased in the three months to the end of August, they are expected to increase by the end of November, as are default rates on other types of loans, including credit cards. Lenders also anticipate an increase in the number of SMEs defaulting on loans, while default rates are likely to remain unchanged for large firms. The report shows that lenders expect the availability of mortgages and other loans to households to increase by the end of November. Mortgage demand is predicted to slip but demand for re-mortgaging is likely to climb, respondents said. Corporate credit availability is expected to remain unchanged, with it also shown that demand for business loans is forecast to increase for large businesses and rise slightly for SMEs.

UK set to keep cap on bankers' bonuses

The UK is set to keep the EU’s cap on bankers’ bonuses, with the Treasury reportedly set to focus on a range of other measures to reform financial services regulation post-Brexit. The cap, which was introduced following the 2008 financial crisis and is overseen by the Prudential Regulation Authority, limits bankers’ bonuses to no more than 100% of their fixed pay - or double that if shareholders back the move. Despite concern that the cap hurts London’s ability to attract the best global talent, a source close to Rishi Sunak said scrapping the measure is “just not a priority and the Chancellor isn’t looking at it.” Matthew Lesh, head of research at the Adam Smith Institute think-tank, comments: “Scrapping the bonus cap would immediately attract thousands of highly paid financial sector workers, boosting our economy and Treasury receipts.”

Banks offer £100 for switchers

Analysis show that there are currently eight current accounts offering switching incentives worth more than £100. NatWest is the latest bank to do so, offering £100 to new and existing customers who switch, with an additional £50 for those who stay for a further nine months. First Direct last week announced it was offering a £100 to new joiners, while Santander, Lloyds Bank, HSBC, RBS and Nationwide are all also offering cash incentives of £100 or more.


HIG Capital settles fraud case

Private equity firm HIG Capital has agreed to pay nearly $20m to resolve claims a mental health company it owned billed for services provided by unlicensed and unqualified staff. HIG Capital will pay $19.95m, while two former executives associated with the mental health company, Peter Scanlan and Kevin Sheehan, will pay an additional $5.05m.


Morgan Stanley profits hit $3.7bn in Q3

Morgan Stanley has posted a profit increase for Q3, with the $3.7bn in profits up around $1bn from the same period last year. Net revenue rose to $14.75bn in the quarter, compared with $11.72bn in Q3 2020. The bank benefited from global mergers and acquisitions reaching new highs in the third quarter, with deals totalling $1.52trn announced in the three months to September 27. Investment banking revenues were up 67% from a year ago. “We had standout performance of our integrated investment bank and record net new assets of $135bn in wealth management,” Morgan Stanley chief executive James Gorman said in a statement.

Citi sees income climb despite revenue dip

Citigroup’s net income was up 48% in Q3, hitting $4.64bn, despite revenue falling 2% to $17.15bn. The bank saw a 39% jump in investment banking revenues to $1.9bn as it pulled in $539m in advisory fees and posted a 40% jump in equity trading revenues, which hit $1.2bn. Citi released $1.16bn in reserves set aside last year for pandemic-related loan losses that never materialised. Jane Fraser, Citi’s CEO, said she was “quite pleased” with the quarterly profit “given the environment we are operating in”.

BoA net income up 64%

Bank of America saw net income climb 64% to $7.26bn in the latest quarter as revenue increased by 12% to $22.8bn. Investment banking fees rose by 23% to $2.2bn, with this driven by a 65% jump in advisory fees to $654m. CEO Brian Moynihan welcomed “strong results as the economy continued to improve and our businesses regained the organic customer growth momentum we saw before the pandemic”.

Wells Fargo income up 59%

Wells Fargo’s net income climbed by 59% to $5.12bn in Q3 after a $1.7bn decrease in its loan loss allowance. Revenue fell 3%.


UKEB expects ‘a lot of noise’ from insurers in IFRS 17 consultation

The new body overseeing the UK’s post-Brexit accounting rules says it is braced for a "lot of noise" from the £1.7trn insurance sector, with Pauline Wallace, the interim chairman of the UK Endorsement Board (UKEB), saying the “insurance industry is very good at making their views known.” The UKEB will consult next month about endorsing insurance accounting rule IFRS 17, which comes into force globally in January 2023. IFRS rules, written by the International Accounting Standards Board (IASB), are used in over 140 jurisdictions and are normally endorsed at a national level. The UKEB’s consultation will centre around whether or not IFRS should be endorsed and, if so, if it should be applied as written by the IASB. The UKEB must take into account the long-term impact of the accounting rule on the UK economy and its competitiveness compared with Europe and elsewhere. While the body could decide not to endorse the rule, such a move would be the “nuclear option”, Ms Wallace has suggested.

Thomson Reuters launches venture capital fund

Thomson Reuters Corp is launching a $100m venture capital fund to invest in early stage companies. Thomson Reuters Ventures is part of CEO Steve Hasker's plan to transform the provider of news and information into a "content-driven technology business."


GSK hits back at activist investor’s reshuffle call

GlaxoSmithKline chairman Sir Jonathan Symonds has hit back at activist investor Bluebell after it called for the replacement of the group’s chairman, as well as chief executive Dame Emma Walmsley. Bluebell earlier this week wrote to Sir Jonathan, calling for a “more radical change agenda” and accusing him of appearing not to have a “precise understanding of the causes of the prolonged and severe underperformance of GSK share price” when addressing a shareholder meeting. In reply, a GSK statement released yesterday saw the pharmaceutical firm say it was “disappointed that Bluebell have deliberately sought to misrepresent the meeting and to distort what was said in order to advance their own narrow agenda”. Bluebell has since offered a response, saying GSK’s version of events is “simply untrue” and repeating demands for a “radical reshuffle” of the board.


Bank of England: Demand for mortgages declined in Q3

The Bank of England’s credit conditions survey shows that demand for mortgages to buy a house fell in Q3 and is likely to fall again in the fourth quarter, but remortgaging is likely to more than offset the fall in new mortgages. A balance of 18.3% of mortgage lenders anticipated a further easing in credit conditions in the final quarter of 2021, slightly higher than the balance of 15.3% reporting that credit conditions eased in Q3. The report shows that mortgage lenders offered lower interest rates than the previous quarter in Q3 and were willing to accept a larger number of applications from buyers with small deposits. Andrew Wishart, property economist at the consultancy Capital Economics said: “Unsurprisingly, given the end of the stamp duty holiday in September, demand for mortgage lending dropped back. That reflects the surge in home moving in the summer abating.”

Average house price up £50k in five years

Zoopla analysis shows that the average price of a home in Britain has risen by £49,257 in the last five years, with the total value of the country’s housing stock jumping 20% to £9.2trn in the period. The data shows that more than a third of the £1.6trn increase has come in the past year. The report found that more than two-thirds of homes in 53 of the country's 367 local authority areas have risen by more than £49,000. Grainne Gilmore, head of research at Zoopla, said: “The value of Britain's residential property has continued to climb over the last five years, speeding up over the last 12 months as house price growth has escalated.”


Morrisons to continue paying UK taxes

Retail industry veteran Sir Terry Leahy says Morrisons will pay its taxes in the UK despite the incoming private equity owners using a Cayman Islands firm to operate the business. Sir Terry, the former Tesco boss who advised Clayton, Dubilier & Rice on the takeover, has written to MP Kevin Hollinrake to insist the retailer “will remain a British business, registered and headquartered in the UK”.


MPC members urge caution on interest rate rise

Two of the Bank of England’s nine-strong Monetary Policy Committee (MPC) have suggested they would like to see the path inflation takes before voting for a rise in borrowing costs. Catherine Mann, a former chief economist at the Organisation for Economic Co-operation and Development and US bank Citi, said the BoE could hold off on raising interest rates as financial market traders are betting on tighter monetary policy, saying that speculation about the Bank’s intentions is increasing the cost of borrowing in financial markets – the outcome a higher rate would be looking to achieve. Meanwhile, fellow MPC member Silvana Tenreyro, a former London School of Economics professor, said pushing rates higher could be “self-defeating” if inflationary pressures turn out to be temporary. She suggested that while the global price of energy and other commodities is pushing up inflation, “these effects in general tend to be short-lived”. “The prices go up, but they don’t keep going up sustainably, so you have a one-off price effect and in that sense inflation should be transitory,” she added.

IMF in inflation warning

The International Monetary Fund (IMF) has warned of the threat to the global economic recovery posed by an outbreak of inflation, urging central banks to respond quickly if current inflation pressures prove not to be transitory. The IMF also warned of the impact of the ongoing coronavirus pandemic, calling on wealthy nations to boost coronavirus vaccination rates in poorer countries.

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