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Daily News Roundup: Friday, 25th February 2022

Posted: 25th February 2022

BANKING

UK sanctions target Russian banks and oligarchs

The UK has announced further sanctions on Russian banks in response to Vladimir Putin’s attack on Ukraine. Boris Johnson said all major Russian banks will have their assets frozen and be excluded from the UK financial system. Immediate action has been taken against Kremlin-controlled VTB, Russia’s second-biggest lender, which has limited operations in the UK through its investment banking arm, VTB Capital. But the Government has stopped short of sanctioning Sberbank, Russia’s largest lender. Additionally, legislation will stop major Russian companies and the state from raising finance or borrowing money on UK markets and Aeroflot will be banned from landing in the UK. Asset freezes will also be placed on 100 new individuals or businesses. The Prime Minister said the G7 group of world leaders had agreed to work in unity to "maximise the economic price that Putin will pay for his aggression". However, Western leaders have so far failed to agree on excluding Russia from the SWIFT payments system although the option to do so remains on the table. The FT points out that cutting Russian banks off from SWIFT would not prevent them from carrying out cross-border transactions, “but doing so would become more costly and arduous.”

Lloyds to invest £4bn in wealth management, technology and private rentals

Lloyds Banking Group CEO Charlie Nunn has pledged to invest £4bn over five years on sectors such as wealth management, technology and private rentals. Mr Nunn said: "2021 has been a year of solid financial performance with successful strategic execution, ongoing investment and continued franchise growth." His strategy was unveiled on Thursday, alongside Lloyds’ fourth-quarter results where it reported slightly weaker than expected pre-tax profit for 2021, weighed down by remediation costs. The bank posted pre-tax profit of £968m, an improvement on the £792m in the same period last year but 30% below consensus estimates. For the full year, Lloyds reported pre-tax profits of £6.9bn, 4% below forecasts. Quarterly revenues of £4.1bn, buoyed by rising interest rates and the improving economic outlook, were offset by £2.8bn in costs — 25% above analysts’ estimates — driven by charges including £600m related to historical fraud at HBOS, which is owned by Lloyds. The bank's results were also boosted by the release of £1.2bn of provisions that the lender had taken against bad loans, in line with projections.

Co-op Bank swings back to profit

The Co-operative Bank saw a near three-fold increase in net mortgage lending last year, resulting in its first profit in a decade. The bank's annual pre-tax profit of £31m, up from a £104m loss in 2020, marks the first time it reported a profit since 2011, when its earnings were £54m. Net interest income climbed to £324m from £267m and the bank booked a £1.1m bad loan charge, substantially lower than the £21.6m booked in 2020. Nick Slape, chief executive, said: “2021 has been a milestone year for The Co-operative Bank, in which we have delivered against the ambitious turnaround plan set three years ago to significantly improve the financial strength and stability of the Bank.”

Open banking boss calls for streamlining of regulators

Charlotte Crosswell, chair of the Open Banking Implementation Entity (OBIE), has called for the “spaghetti soup” of regulators overseeing the technology to be streamlined, as fintech firms increasingly push to accelerate its roll out. Open banking, which was introduced in 2018 to free up data sharing in banking, has been touted by fintech firms as key to driving innovation in financial services. Ms Crosswell said: "It's not just about open banking now, it's really becoming about where this technology sits and where its natural home is. We have got to work out who's going to take it forward, and how many regulators are going to be involved and who's going to set the policy going forward.”

City banking jobs market booming

New research by recruiter Morgan McKinley and Vacancysoft has revealed that the City banking jobs market is booming as lenders rush to reverse jobs cuts launched during the pandemic. The UK's top banks are looking to hire nearly 3,000 new candidates, according to the study. Ben Harris, associate director at Morgan McKinley, said: "The recruitment market is candidate-led, with job-seekers in 2022 being offered multiple options." City A.M. suggests that a bumper round of banker bonuses announced by the likes of Barclays, HSBC and NatWest during banks' earning season over the last week is likely to incentivise workers who were not previously considering a career in financial services to flood into the sector.

PRIVATE EQUITY

High returns make VCTS attractive

Investors are flocking to venture capital trusts after a period of high performance and because of the tax breaks they offer. VCTs which are part of the Venture Capital Trust Association’s portfolio have delivered an average total return of 24% over the last financial year. Additionally, investors can claim up to 30% income tax relief on the amount they have invested in a VCT, provided they hold the investment for at least five years.

INTERNATIONAL

Santander chair Ana Botín cedes power following ECB pressure

Following pressure from the European Central Bank to improve corporate governance, Santander chair Ana Botín has handed operational authority to CEO José Antonio Álvarez, who will now only report directly to the board, rather than the chair. In a statement, the bank said Botín will retain the power to set strategy while the CEO will run the group’s regions, countries and global business divisions. The ECB has been pushing Spanish lenders to separate the chair and CEO positions for some time to improve risk management and accountability.

RBC exceeds profit expectations

Royal Bank of Canada has reported adjusted earnings of C$2.87 per share, up from C$2.69 a year earlier. Analysts had expected C$2.73 a share, according to IBES data from Refinitiv. Earnings from Royal Bank's personal and commercial banking unit climbed 10% and wealth management profit jumped 24% from a year ago, driven by higher loan volumes in Canada at the former and increased assets and the release of provisions at the latter's US business.

Bank of America executive to leave Hong Kong as exodus continues

Craig Coben, Bank of America’s co-head of global capital markets in Asia-Pacific, is to depart from Hong Kong after less than two years as harsh pandemic restrictions prompt an exodus of executives from the territory. 

Morgan Stanley discloses twin probes into big stock transactions

The Securities and Exchange Commission has been investigating Morgan Stanley’s block trading business since 2019, its annual report shows, while the Department of Justice recently joined with its own investigation.

AUTOMOTIVE

Car production hit decade-low in January

New figures from the Society of Motor Manufacturers and Traders (SMMT) show car production fell to its lowest January total in a decade, despite an increase in the manufacture of electric vehicles. Almost 68,800 cars left factories in January, down by 20% on a year ago and the worst figure for that month since 2009. Mike Hawes, SMMT chief executive, said global supply issues and model changes affecting production schedules had resulted in another torrid start to the year. "The UK automotive manufacturing industry is, however, fundamentally strong and recent investment announcements are testament to the potential for growth, not least in terms of rising EV production," he said.

FINANCIAL SERVICES

UK’s largest wealth manager SJP warns of slowing growth

St James’s Place is expecting growth to slow from record inflows last year, the wealth manager said, as the boost from the pandemic recovery wanes and turbulence hits financial markets. Net inflows rose from £8.2bn to £11bn in 2021, while funds under management swelled from £129.3bn to £154bn.

Rathbone sees profit jump 30%

Rathbone saw its pre-tax profit rise by 30% to £120.7m in 2021 as total funds under management and administration grew to £68.2bn, up 24.7% compared to the end of last year.

HEALTHCARE

Moderna says pandemic will end in 2022 but annual boosters needed

US drugmaker Moderna said on Thursday that it expects the pandemic to end this year but predicted that annual COVID-19 boosters would likely be needed for people over the age of 50 and the vulnerable.

US sues to stop UnitedHealth’s $13bn purchase of Change Healthcare

The US Department of Justice has moved to block the acquisition of Change Healthcare by UnitedHealth arguing that the takeover would substantially reduce competition in the industry.

MANUFACTURING

Rolls-Royce shares tumble after it says chief Warren East is leaving

Shares in Rolls-Royce fell by as much as 18% on Thursday, to settle at around 11% down, after the UK engineering company announced that CEO Warren East will step down later this year. The company returned to a profit of £414m last year after sinking to a £2bn loss for 2020 and reported a better-than-expected level of cash expenditure. Meanwhile, BAE Systems said annual profits rose 13% to £2.2bn as the MoD and its other European customers increased their defence spending.

PROFESSIONAL SERVICES

Hays sees profits surge over 300%

Significant skills shortages in the technology and accountancy sectors in particular have helped drive a more than 300% increase in profit for Hays, the recruitment giant said. Fees for the half year to the end of December were up 39% and operating profit soared 327% to £101.6m. UK fees climbed 39% on a like-for-like basis pushing operating profits up to £18.2m compared to a £1m loss in the same period in 2020. Boss Alistair Cox said: “As the economic recovery accelerated globally, client and candidate confidence strengthened, leading to significant skill shortages across all our markets.”

ECONOMY

US stocks rebound after sell-off in Europe

The FTSE 100 closed 3.9% down on Thursday, amid a global sell-off as Russia invaded Ukraine. The fall sent London’s premier share index back below where it was in February 2020, days before the coronavirus triggered a global sell-off. European indexes fell sharply too but the Russian stock market, the Moex, plunged furthest, losing a third of its value. In the US, markets bounced back following massive swings with the S&P 500 closing up 1.5%, rebounding from a loss of as much as 2.6% while the Nasdaq Composite index rallied 3.3% by the closing bell, reversing a 3.4% loss earlier in the day. Brent crude crossed the $100 threshold for the first time since 2014 hitting $105.79 but settled 2.3% up at $99.08. Gas prices jumped by around 60% in the UK and Europe, leading analysts to warn that household energy bills could surge as high as £3,000 later this year if wholesale gas prices don't fall back. The price of gold rose to its highest in 17 months but fell back after the US imposed weaker-than-expected sanctions on Russia. Bitcoin failed to prove itself a safe haven asset, dipping below $34,400 briefly on Thursday, while the crypto market fell 10% on Thursday morning.

UK consumer confidence plunges

UK consumer confidence fell sharply in February with households holding back spending as surging living costs hit morale. The consumer confidence index, compiled by research company GfK, fell seven points to minus 26 in February - the lowest score since January 2021.“Fear about the impact of price rises from food to fuel and utilities, increased taxation and interest rate hikes has created a perfect storm of worries that has shaken consumer confidence,” said Joe Staton, client strategy director at GfK.

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