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Daily News Roundup: Friday, 21st October 2022

Posted: 21st October 2022

BANKING

High taxes are hitting competition, say midsized UK banks

Mid-sized UK lenders have told City minister Andrew Griffith that the bank levy, an additional 8% on top of the corporation tax rate, was dissuading them from growing and preventing them from lending more. Corporation tax is due to rise to 25% next year bringing the total tax burden on banks to 33%. UK banking shares struggled on Thursday amid fears they could be hit by a new windfall tax on top of the banking levy. Mid-sized banks have also written to the Treasury to complain that rules that set out the amount of equity and debt a lender must hold to absorb losses if it fails (MREL regulations) disproportionately affect smaller banks and could prevent them from lending up to £62bn over the next five years. Meanwhile, Jamie Dimon, the chief executive officer of JPMorgan Chase is set to call Chancellor Jeremy Hunt next week to express his concerns over rising taxes on banks in the UK, according to Bloomberg.

Bank attempts to calm fears of severe rate increases

Ben Broadbent, the deputy governor of the Bank of England, has suggested that although there could be a steep increase in interest rates next month, they may not rise to the high of 5.25% next year, as predicted by traders. The Bank's modelling suggests that a peak of 5.25% would reduce GDP by 5%, he said - an impact that many economists would likely consider to be unacceptably severe. Meanwhile, the average rate for a two-year fixed mortgage is now 6.5%, the highest rate since before the financial crisis, according to Moneyfacts, and up from 4.74% on the day before the mini-Budget. Analysts say that if mortgage rates climb in line with a predicted 0.75 percentage point interest rate rise by the Bank in November, the average two-year fix could hit 7% this year.

Veto on City rules would be ‘serious concern’, Cunliffe says

Sir Jon Cunliffe, deputy governor of the Bank of England, told lawmakers that powers giving government ministers the right to block or change the actions of regulators could undermine City watchdogs and consequently harm the competitiveness of the UK’s financial services industry. The power would be included in the Treasury’s proposed financial services and markets bill which aims to overhaul UK financial regulation post-Brexit to boost its global competitiveness. But Cunliffe said although Brexit has given the UK the opportunity to redraft its laws to create a more “nimble and flexible” regime, he did not accept that the central bank’s culture is “anti-innovation” as some have claimed.

Lloyds Bank ditches fossil fuel financing

Lloyds Banking Group has said it will no longer directly finance fossil fuel projects in a move designed to support the UK's transition to a sustainable, low-carbon economy. The bank said in a statement: “Addressing the potential impacts of climate change, how our customers are engaging with the opportunities and challenges created by climate change and the need to transition to a low carbon economy plays a key role in our risk management approach to sustainability. We actively encourage our customers to reduce their reliance on revenue from carbon-intensive activities, and to transition to a lower-carbon economy, in line with the aims of the Paris Agreement.”

Better sharing of data could reduce fraud, banks say

British banks and technology companies are calling on regulators to make it easier for them to share anonymised data on customers so they can spot and stop scams faster. A report from industry body Stop Scams UK and the Royal United Services Institute on Thursday said complex guidelines and processes around privacy law make it difficult for companies to share data to stop fraud. "If we are to unlock data sharing at scale, we call for proportionate and sensible changes to guidance around the interpretation of privacy law," said Ruth Evans, chair of Stop Scams UK, whose members include HSBC, Lloyds, NatWest, Barclays, TalkTalk, Meta and Google.

Bank of Ireland introduces paid menopause leave

Bank of Ireland is introducing leave for women going through the menopause. The new policy includes up to 10 days of paid leave for employees who are experiencing sickness related to menopause, the bank said. “We want to help our colleagues at all stages of their lives including the menopause,” said Joanne Healy, head of employee relations at the Bank of Ireland. “We will continue to explore ways that we can improve at the experience and wellbeing for all of our Bank of Ireland colleagues.”

PRIVATE EQUITY

Blackstone profits hit by rising rates and stock market sell-off

Private equity giant Blackstone reported on Thursday that its third-quarter distributable earnings fell 16% year-on-year, owing to a sharp drop in asset sales amid a downturn in the market. Fee-related earnings, however, rose 51% in the quarter to a record $1.2bn, surpassing analyst estimates while assets under management rose to a record $951bn – up 30% on last year.

INTERNATIONAL

Deutsche Bank cuts investment banking jobs

Deutsche Bank cut staff in the origination and advisory areas of its investment banking unit amid fears of a decline in dealmaking as economise struggle. The job cuts affected mostly junior bankers, according to reports.

Credit Suisse did not rig forex market

Credit Suisse Group did not conspire with the world's largest banks to rig prices in the foreign exchange market between 2007 and 2013, a Manhattan jury found on Thursday. The verdict is a welcome one for the Swiss bank as it navigates a wide-raging restructuring.

EU urged to help pension funds on margin calls stress

The International Swaps and Derivatives Association has called for European pension funds to have access to a central bank-backed facility to help them avoid a fire-sale of assets.

AUTOMOTIVE

VW sued over green ambitions

A group of pension funds is suing Volkswagen for allegedly secretly lobbying against environmental targets while touting its own net-zero ambitions publicly. The investors, which include Danish labour-market fund AkademikerPension and Church of England Pensions, say they "are concerned that while the auto giant is publicly championing the green transition, it may be undertaking lobbying activities that run counter to its stated climate ambitions". ClientEarth, the legal charity providing support to the investors' case, added: "This potential contradiction exposes the company to reputational and operational damage and puts the security of their investments in question."

EV start-up Arrival to cut UK jobs in production shift to US

Electric vehicle start-up Arrival has announced it will relocate van production from Bicester to the US, putting hundreds of UK jobs at risk.

FINANCIAL SERVICES

Schroders’ division housing LDI lost £20bn in assets after mini-Budget

FTSE 100 asset manager Schroders has said it lost £20.2bn in assets from the division that includes its liability-driven investing (LDI) business after the former Chancellor’s mini-Budget. Turmoil in the market following Kwasi Kwarteng’s fiscal statement sent assets in its “solutions” division plunging from £225bn in June to £205bn at the end of September. Total assets under management tumbled from £773bn to £752bn between July and September, Schroders reported on Thursday.

PRA fines MS Amlin Underwriting almost £10m

The Prudential Regulation Authority has fined MS Amlin Underwriting, a Lloyds of London insurer, almost £10m for a series of regulatory failings. The watchdog, part of the Bank of England, said MS Amlin did not have adequate governance, oversight and risk management in place after restructuring its business into three divisions.

Michael Dell-backed investment group merges with Warren Buffett’s favoured advisory firm

MSD Partners, the investment group founded by Michael Dell, is merging with Byron Trott’s BDT merchant bank, creating a group that counts some of the world’s highest-profile billionaires and entrepreneurs as clients.

MEDIA & ENTERTAINMENT

Musk to go further than Twitter and cut staff by 75%

Elon Musk has said he plans to get rid of nearly 75% of Twitter’s 7,500 workers if his deal to buy the company goes through. The move would bring Twitter’s staff numbers down to just over 2,000. The cuts are far more severe than those already mooted by Twitter, which has planned to cut a quarter of its workforce by the end of next year. Major cuts to its infrastructure, including data centers were also in the works, the Washington Post reports.

RETAIL

Amazon could owe UK shoppers £900m compensation

Amazon shoppers in the UK could receive a share of £900m in compensation should a legal claim led by a consumer-rights champion be successful. Amazon is accused of obscuring deals that offer consumers better value than products sold by Amazon itself or retailers who pay Amazon for handling their logistics. The collective action, due to be filed before the end of the month with the Competition Appeal Tribunal, in London, will seek damages from Amazon estimated in the region of £900m. Both the European Commission and the UK’s Competition and Markets Authority are investigating allegations that Amazon is unduly favouring its own retail business over sellers using its logistics and delivery services.  

Cautious consumers put festive sales at risk

A new study from GfK reveals consumers are eschewing large purchases such as televisions and sofas in the run-up to Christmas period as households battered by rising inflation face the prospect of higher taxes and possible spending cuts. Overall consumer confidence edged up from minus 49 to minus 47 but the major purchases indicator slumped from minus 38 to minus 41 this month.

ECONOMY

Scrapping energy price cap will bring surge in inflation

Economists have said the Chancellor’s decision to scrap the Government’s energy price cap next April would put inflation on course to rise at the fastest rate since 1980. Jeremy Hunt is to end a guarantee that caps average annual energy costs at £2,500 early, instead of continuing it for two years as initially planned. The move could cause inflation to surge to 15%, according to analysts at Abrdn, unless another subsidy is introduced. Separately, the Financial Conduct Authority has found that almost 12m adults have money troubles or could find themselves in difficulty if they had a financial shock, two million more than in a 2020 survey. Finally, researchers from the universities of Exeter, Sheffield and Bournemouth have suggested rising energy prices and the impact of climate change could add £407 to the average food shop this year.

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