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Daily News Roundup: Friday, 19th January 2024

Posted: 19th January 2024

BANKING

BoE warns of rising default rates on mortgages and credit cards

UK banks are expecting the sharpest rise in defaults on unsecured lending since 2009, according to a Bank of England survey. The survey shows that banks anticipate a rise in the number of people failing to meet repayments on credit cards, loans, and other forms of unsecured borrowing in the next three months. If the forecasts are accurate, it would mark the sharpest quarterly rise in defaults since the global financial crisis. Defaults on mortgage payments have also increased and are expected to continue rising. Despite a price war in the mortgage market, homeowners are expected to face higher borrowing costs as they reach the end of cheaper deals. "There was a massive surge in missed debt repayments at the end of last year, as a huge number of those whose finances had been on a knife-edge finally tipped over into a debt disaster," said Sarah Coles, head of personal finance at Hargreaves Lansdown.

Hunt to quiz banks on low valuations

Executives from HSBC, Lloyds, and NatWest will meet Chancellor Jeremy Hunt next week to discuss concerns that the share price weakness of UK banks is inhibiting lending to the wider economy. The meeting, orchestrated by Rishi Sunak's chief business adviser Franck Petitgas, aims to explore steps the Government can take to boost confidence in banks and stimulate lending. The decline in UK bank valuations has occurred despite their balance sheets remaining larger than many of their international peers. The talks come ahead of the release of the banks' annual results for 2023, with earnings growth expected to be impacted by emerging headwinds. The meeting will also be attended by representatives from Barclays, Santander UK, and the London Stock Exchange.

Sainsbury's Bank to wind down after 27 years

Sainsbury's plans to wind down its banking division as it shifts its focus to its core food business. The supermarket will have a phased withdrawal from its banking services, but assures its 1.9m customers that there will be no immediate changes. Sainsbury's Bank currently offers loans, credit cards, and savings accounts which it now intends to provide via third parties. Rival Tesco is also reportedly looking to sell its banking business, with HSBC, Barclays, and Lloyds named as possible bidders. Sainsbury's Bank CEO Jim Brown will retire, and Robert Mulhall will take over to oversee the changes. Analysts applauded the decision, noting that the bank has been a drag on group performance.

Santander announces new market-leading mortgage deals

Santander has announced new market-leading mortgage deals, cutting its lowest two-year fixed rate deal to 4.1%. The deal is available to home buyers with at least a 40% deposit. This rate cut comes after the average two-year fix for buyers with the biggest deposits was recorded at 5.09%. Santander's new rate is £113 less per month than the average. Despite five-year fixed rates being cheaper, two-year fixed rate deals have become the most popular among home buyers as they hope rates will be lower when they come to refinance.

Cynergy bank boss urges small firms to ‘de-risk' current accounts

Cynergy Bank CEO, Nick Fahy, has criticised small and medium-sized enterprises (SMEs) for keeping too much money in no-interest current accounts. He stated that SMEs are struggling with loan repayments due to inflation and high interest rates. Fahy highlighted the need for SMEs to de-risk their savings by opening accounts with multiple banks. Cynergy Bank has launched a new business current account with 1.5% interest on deposits up to £25,000. The bank aims to disrupt the business current account market and compete with high street lenders. Gross lending to SMEs has fallen for the fifth consecutive time, according to UK Finance, with demand uncertainty and high borrowing costs being cited as reasons.

Cash Access UK confirms location of banking hub in Otley

Cash Access UK has confirmed the location of a banking hub in Otley, West Yorkshire. The hub will offer a counter service for six major banks and allow customers to speak to staff in person. Cash Access UK chose Otley for the hub after the town's final bank announced plans to close its branch. The decision to base a hub in Otley was made on the advice of LINK, which runs the majority of the UK's cash machines. The banks sharing the counter will include Barclays, Halifax, HSBC, Santander, NatWest, and Virgin Money. Conservative MP Alex Sobel called the hub "good news" for the town and a "positive step towards ensuring accessible financial services for residents."

PRIVATE EQUITY

Private equity-owned firms still refusing to disclose data

Some of Britain's best-known private equity-owned companies continue to flout disclosure guidelines despite being named for the same failings two years ago. Eleven UK companies owned by private equity were cited by a panel set up under the Walker Review for their refusal to take part in disclosing data. The Private Equity Reporting Group criticised the companies for their failure to disclose basic financial information, taxes and wages, and non-financial metrics. The importance of better disclosure remains a concern as the Treasury pushes ahead with plans to encourage pension funds to invest in private equity, writes the Times’ Patrick Hosking. Private equity-backed firms are seen as having a financial edge over listed companies due to less pressure for disclosure and emphasis on non-financial targets. However, private equity-backed firms lagged behind listed companies for profits growth in 2022, according to a separate report yesterday.

EQT eyes further tie-ups

Swedish private equity giant EQT is targeting further acquisitions to accelerate growth and better compete in tough markets, according to CFO Kim Henriksson. Henriksson said that EQT will primarily focus on "bolt-on" deals to accelerate growth in specific locations, but is open to more transformational acquisitions.

INTERNATIONAL

China grants six foreign banks licences for debt underwriting

China has granted six foreign banks licences allowing them to act as lead underwriters for debt issues in China's renminbi-denominated onshore debt market. Credit Agricole, HSBC, and Standard Chartered obtained "type A" licences, joining Deutsche Bank and BNP Paribas as the only foreign banks with this licence. JPMorgan, Mizuho, and MUFG were also granted licences to become lead underwriters on debt issues by foreign borrowers. Foreign companies issued a record amount of local currency bonds in China in the first half of last year, attracted by lower borrowing costs and government incentives.

Jamie Dimon's pay rises over 4% for 2023

JPMorgan Chase CEO Jamie Dimon's compensation for 2023 has increased to $36m, a rise of 4.3% from the previous year. The pay package includes a base salary of $1.5m and a performance bonus of $34.5m, consisting of $5m in cash and $29.5m in stock. The bank's board praised Dimon's stewardship of the firm, citing growth across all business lines, record financial results, and a strong balance sheet. Dimon, who has been CEO since 2005, has an estimated net worth of $1.7bn.

Commerzbank acquires majority stake in Aquila Capital

Commerzbank has purchased a majority stake of 74.9% in renewable energy-focused asset manager Aquila Capital, with the remaining 25.1% stake staying with Aquila's parent company. The acquisition is expected to contribute significantly to Commerzbank's planned growth in commission income. The German bank aims to expand its market position in sustainable asset management and diversify its income. The financial details of the transaction were not disclosed.

New liquidity rules would guard against runs – Hsu

A top U.S. banking regulator has announced plans for new short-term liquidity rules to help lenders respond to runs by depositors. The acting Comptroller of the Currency, Michael Hsu, stated that larger banks should be required to prove their ability to quickly access funds over the "ultra-short term." Hsu also suggested that banks should be ready to access emergency funding through the Federal Reserve's discount window.

FINANCIAL SERVICES

House of Lords creates body to oversee UK financial regulators

A new cross-party House of Lords body is forming a committee to oversee financial services regulators, aiming to improve accountability as they gain post-Brexit powers.

MANUFACTURING

Tata Steel to cut nearly 3,000 Port Talbot jobs

Tata Steel is set to cut around 2,800 jobs as it closes its steelmaking plant in Port Talbot, Wales. The closure of the two blast furnaces at the site will leave the UK as the only major economy without the ability to produce steel from scratch. The company plans to invest £750m in the restructuring, with £500m of funding from the British government. Tata Steel will replace the blast furnaces with an electric arc furnace, a less labour-intensive method that uses scrap steel. The UK’s only other blast furnaces, at Scunthorpe, are also slated for shutdown during a similar, potentially lengthy transition process to electric arc furnaces. That would leave the UK as be the only G20 country that cannot make steel from raw materials. 

MEDIA & ENTERTAINMENT

Google to build $1bn data centre in Waltham Cross

Google has announced a billion-dollar investment in a UK data centre in a move hailed by the Government as a “huge vote of confidence in Britain”. The data centre, which will be built on a 33-acre site in Hertfordshire, will power Google's cloud and AI services for British customers and will be the company's third big site around the capital, after King's Cross and Central Saint Giles in London. It marks the latest investment by a leading American technology company in Britain, coming less than two months after Microsoft said it would invest £2.5bn to expand data centres for artificial intelligence nationwide.

RETAIL

Currys boss blames Hunt's 'ill-judged' policies for high street decline

Jeremy Hunt’s policies are to blame for the decline of Britain’s high streets, the boss of Currys has said, as he launched a fresh plea for the Chancellor to stop loading costs on “overburdened” retailers. Alex Baldock, chief executive, hit out at Mr Hunt’s “ill-judged” plans to increase business rates at the same time as pushing up the national minimum wage and plotting new recycling legislation. The latter move is expected to increase costs for retailers as they will no longer be able to charge for recycling. Currys is responsible for half of all the UK’s electrical waste recycling.  

ECONOMY

Small business confidence grows

Optimism among small and medium-sized enterprises (SMEs) is at its highest level in almost two years, driven by a rise in output in December, according to a survey compiled by NatWest. However, the survey reveals a divide in the trading performance of services, manufacturing, and construction businesses. Services-based companies outperformed their larger peers, while manufacturers recorded a fifth consecutive month of decline in production volumes. Construction firms saw a slightly reduced decline in output, but the survey results remained negative. James Holian, head of business banking at NatWest, said: “After a turbulent year for the economy, it is really encouraging to see that small businesses ended 2023 in higher spirits, with growth accelerating at the fastest rate since May. With business confidence now at its highest level in over a year, there's a real sense of momentum as we start 2024.”

Concern over inflation remains for Scottish businesses

Inflation concerns among Scottish businesses have decreased, but remain higher than pre-inflation crisis levels, according to a survey by the Scottish Chambers of Commerce. The survey also found that concerns over interest rates were still significantly higher than before the crisis.

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