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Daily News Roundup: Friday, 1st July 2022

Posted: 1st July 2022

BANKING

UK Infrastructure Bank has £5bn pipeline

The UK Infrastructure Bank has a pipeline of future deals worth £5bn, according to the National Audit Office (NAO). Gareth Davies, head of the NAO, said “there is more work to do” before the state-owned bank, which was set up to support economic growth in regional sectors across the UK, is fully operational. The bank, which has been allocated £22bn of public funds, will provide cash through equity investments, loans, and guarantees to support infrastructure projects. The NAO report said the bank, which is headed up by former HSBC chief executive John Flint, has sought to proceed with deals at a pace “while completing the development of its internal controls and processes, including research skills”.

Virgin Money in £75m buyback

Virgin Money has unveiled a buyback programme that will see the lender repurchase up to £75m worth of shares. Virgin said it would buy back shares with an initial repurchase of ordinary shares at £0.10 each. David Duffy, the chief executive, said: “As Virgin Money continues to deliver against its strategic objectives and maintain a strong capital base, I am pleased to confirm the launch of our inaugural share buyback programme.” In May’s half-year results, Virgin said underlying pre-tax profit was up by over 50%. The bank reported an underlying pre-tax profit of £388m for the six months to March 31, up 58% from £245m in the first half of last year. Total underlying operating income increased to £865m, from £743m the year before.

Barclays announces cost-of-living pay rise

More than 35,000 customer-facing and junior employees at Barclays are to get a £1,200 pay rise to help with the cost-of-living crisis. The bank said the increase will take effect from August 1, bringing forward an annual pay review that would normally have taken effect in March next year. All UK staff in customer-facing roles, in branches and junior workers will benefit from the pay increase, with an annual pay review for all staff which will take effect in March 2023 coming in the “near future.” Barclays said it will “continue to monitor the economic situation globally and consider our approach to pay in each country in the local context.”

INTERNATIONAL

HSBC to relaunch India private banking business

HSBC plans to relaunch its private banking business in India within a year, India CEO Hitendra Dave has said. HSBC exited the Indian private banking business in 2015 as part of a group strategy but is preparing to relaunch the business at a time when it is increasing its focus on Asia. Mr Dave said: “We can see the amount of wealth creation in India and the growth in the number of millionaires ... so an in-principle decision has been made to re-introduce private banking in India.” He added: “We are running through the process of internal approvals and it may take anywhere from six to 12 months and will include a full suite of private banking products."

Greyscale launches lawsuit against SEC

Grayscale has launched a lawsuit against the US Securities and Exchange Commission after the US regulator rejected its bid to transform the world's biggest crypto trust into an exchange-traded fund. Grayscale CEO Michael Sonnenshein said the regulator is not applying consistent treatment to bitcoin investment vehicles, since several futures products tied to bitcoin are tradable.

FINANCIAL SERVICES

FCA warns providers over ties with advisers

The Financial Conduct Authority (FCA) has warned lifetime mortgage providers that their relationships with advisers could be a “conflict of interest.” The City watchdog also suggested this could pose a “challenge for the sector” going forward. In a letter addressed to lifetime mortgage provider CEOs, the FCA set out its concerns over consumers who may be more susceptible to buying “unsuitable” equity release products. It said: “We continue to see challenges for the sector, particularly around customer vulnerability, product design and governance and its relationship with intermediaries.” Lenders relying on intermediaries should have “clear policies” and be able to show evidence of the due diligence carried out, the FCA said, adding that the due diligence should be reviewed “on an ongoing basis to ensure firms minimise the risk to themselves and consumers in terms of operational resilience, exposure to financial crime and business continuity.” The regulator noted Institute of Fiscal Studies estimates which suggest UK households could face inflation levels as high as 14%, while also highlighting that 27% of the population currently have “low financial resilience” - a figure it believes is likely to increase over the coming months.

Financial services returns to growth

The UK’s financial and professional services sector bounced back last year, seeing growth after a pandemic-driven contraction in 2020. Analysis by industry body TheCityUK shows the sector saw year-on-year growth of 8% in 2021, having seen a contraction of 0.6% in 2020. It was also shown the total industry output in 2021 reached £261bn, up by £19bn year-on-year. Collectively the sectors accounted for 12% of total UK economic output, up from 10% in 2020. Anjalika Bardalai, TheCityUK’s chief economist, said the sectors had “weathered the challenges of the pandemic period well.” She added that resilience shown through the pandemic means the sectors are “well-placed to withstand the myriad economic and geopolitical challenges” set to hit the economy this year.

City could see jobs cull

The Evening Standard’s Simon English says bankers are “bracing themselves for a summer jobs cull,” pointing to concern that the market for new stock flotations has almost entirely dried up and fund managers are seeing massive outflows of cash. While Berenberg has already cut jobs in London and New York, there are suggestions that Credit Suisse, Numis, RBC Capital are said to be “at least pondering laying people off.” David Buik of Aquis Exchange comments: “Markets cope brilliantly with good and bad news; what they cannot deal with is uncertainty and the City of London currently is experiencing it in spades.” Russ Mould at AJ Bell reflects on what happens when revenue dips at firms who “find themselves with a lot of expensive talent,” saying: “First the bonus pool shrinks, then fingers are crossed for a bit of natural attrition and – if the deal flow remains too much like a trickle for comfort – then the job cuts come next.” Mr English cites UK Finance figures showing that there are nearly 500,000 bankers in Britain.

REAL ESTATE

Average house prices hit record high but growth slows

The average UK house price hit a new record of £271,613 in June, according to Nationwide, with this marking a 10.7% increase on the typical price recorded in June 2021. However, growth has slowed, with the year-on-year increase seen in June down on the 11.2% rise recorded in the year to May. Month-on-month, prices rose 0.3% between May and June. This also suggests growth is slowing, with the increase short of the 0.9% growth posted between April and May. Robert Gardner, Nationwide’s chief economist, said: “There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer inquiries.” However, he added that the housing market “has retained a surprising amount of momentum given the mounting pressure on household budgets from high inflation.”

RETAIL

Boots reports 24% rise in sales

Boots has reported strong sales with a 24% increase over the quarter, boosted by a 45% year-on-year rise in store footfall. Total sales grew by 13.5% over the period, despite soaring inflation driving customers to cut back on discretionary spending. In addition, website sales have more than doubled on pre-pandemic levels, now accounting for 13% of quarterly sales up from just 6% before the pandemic.

Frasers takes stake in Mysale

Frasers Group has taken a 28.7% stake in Australian online fashion flash-sale firm Mysale. Frasers said the holding would create “an opportunity for a strategic partnership whereby end of line Group products can be cleared via an established clearance channel.”

ECONOMY

Disposable incomes hit by record squeeze

Families are officially suffering the worst squeeze on record, with real disposable incomes falling for the fourth quarter in a row. Real household disposable income was down 0.2% between January and March, as income growth of 1.5% was outstripped by household inflation of 1.7%. With finances failing to keep pace with inflation in Q1, it marks the longest sequence of declines since official records started in 1955. The Office for National Statistics (ONS) has confirmed its earlier estimation that GDP rose by 0.8% in Q1. This marked a decline in growth from 1.3% in the previous three months, but means GDP remains 0.7% above the last quarter of 2019, before the pandemic struck. Darren Morgan, director of economic statistics at the ONS, said: “Both household incomes and spending rose in cash terms in the first quarter, leaving the rate of saving unchanged. However, once taking account of inflation, incomes fell again, for the fourth consecutive quarter.”

Goldman: Recession risk has risen

Economists at Goldman Sachs say the chances of a UK recession have risen, coming closer to 50-50. Analysts at the US investment bank said: “We think a recession is more likely in the UK than in the euro area (40%) and the US (30%), and recession risks are more front-loaded in the UK, with the current quarter likely in contractionary territory.”

OTHER

2m more people face higher tax rates since 2019

HMRC figures show that nearly 2m people have been dragged into the higher and additional rates of tax over the past three years. It is forecast that 6.1m people will be paying income tax at 40% or 45% in 2022/23. There are a projected 5.5m higher rate income taxpayers in 2022/23 - a 43.9% increase on 2019/20. The projected 629,000 additional rate income taxpayers equate to a 49.4% increase from 2019/20. HMRC data shows that overall there were 31.5m income taxpayers in tax year 2019/20, with this projected to increase to 34m in 2022/23. Sir Steve Webb, a partner at LCP and a former pensions minister, said: “Paying higher rate tax used to be reserved for the very wealthiest, but this has changed very dramatically in recent years.” “The starting point for higher rate tax has not kept pace with rising incomes, and the current five-year freeze on thresholds has turbo-charged this trend,” he added.

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