BoE risks losing credibility, warns former deputy governor
Former deputy governor of the Bank of England, Sir Paul Tucker, has questioned whether the central bank hasn’t become another arm of the Treasury arguing that its £300bn programme of money creation and purchases of government debt smacked of monetary financing. Sir Paul said the Bank’s quantitative easing scheme had gone far beyond what was needed to stabilise the markets. However, Bank Governor Andrew Bailey defended its actions. Speaking to MPs on the Treasury Select Committee, he said: “We could only do what we are doing at the moment, in terms of the pace, scale and aggression of the Bank’s action, if we were credibly independent.”
Risks to non-bank financial sector to be probed
The Bank of England governor, Andrew Bailey, has told the Chancellor that shadow banks could face tougher regulation after calling on central bank assistance during the peak of the market panic in March. “Where appropriate, the assessment will identify gaps in resilience in the non-bank financial sector and the potential measures that may be taken to increase resilience,” Mr Bailey wrote in a letter to Rishi Sunak.
Yorkshire Building Society reintroduces 10% mortgages
Yorkshire Building Society has reintroduced 10% deposit deals for first-time buyers at a time when the market has been getting tougher for people seeking low-deposit mortgages. The lender had pulled its 10% deals earlier this month. The relaunched products will only be available where at least one of the applicants is a first-time buyer. This means they must never have owned a property or held a mortgage before.
Lenders pay hundreds of bounce back loans twice in error
Barclays, HSBC, Lloyds Bank and Santander mistakenly issued coronavirus bounce back loans twice to thousands of customers. One HSBC customer, financial consultant and entrepreneur Charlie Boyle, remarked: “On the one hand you have people who can't get any money, and then some banks are so inefficient they're paying people twice and not even realising it.” NatWest, RBS and TSB said they have not paid any customers twice.
Fed limits bank payouts and suspends share buybacks
US stock futures were mostly flat on Thursday night after the Federal Reserve released its latest bank stress-test results. The annual stress test shows some banks could get close to minimum capital levels in scenarios related to the coronavirus pandemic. As a result, banks must suspend share buybacks and keep dividend payments at current levels for the third quarter. Fed Vice Chair Randall Quarles said in a statement: “While I expect banks will continue to manage their capital actions and liquidity risk prudently, and in support of the real economy, there is material uncertainty about the trajectory for the economic recovery.” The comments sent Bank of America and JPMorgan Chase shares down more than 1.8%, while Wells Fargo slid 3% and Goldman Sachs dropped 3.4%.
SEB fined over dirty money
Skandinaviska Enskilda Banken (SEB) has been fined 1bn kronor (£121m) by Sweden's financial supervisory authority for "deficiencies in identifying and managing the risk of money laundering" at its Baltic subsidiaries.
Brazil’s banks face pincer threat from big tech and fintech
The FT reports on how Brazil’s biggest banks lobbied to the central bank to suspend the launch of WhatsApp’s digital payments service in the country.
UK car production slumped 95% in May
The Society of Motor Manufacturers and Traders have reported a slump in car production of 95% year-on-year in May. The fall in output to just 5,314 vehicles in the month is the lowest level for May since 1946. Production in April was down to 99.7% after manufacturers had to shut factories down to help prevent the spread of the coronavirus, resulting in just 197 cars being built. About two thirds of the UK’s motor plants went back to work in May, but capacity was hampered by social distancing and reduced demand. Mike Hawes, the trade body’s chief executive, said: “Government assistance so far has been vital in keeping many businesses afloat, but the job isn’t done. Measures to boost cashflow, including additional and tailored finance schemes, tax relief and business rates deferral would deliver immediate results when liquidity is most acute.”
Rivals angry after EU approves Lufthansa bailout
The EU has approved Germany’s €6.7bn bailout of Lufthansa which will give the state a 20% stake in the airline. The German government will pay €300m euros for a 20% stake and make two so-called silent participations of €4.7bn and €1bn in the company’s capital. The European Commission claimed the move is in line with state-aid rules, but Irish rival Ryanair says it will sue to overturn the decision. The company’s Chief Legal Officer Juliusz Komorek said: “There is absolutely no reason why Lufthansa, which benefits from the German payroll support system scheme, might on top of this require €9bn,” he told reporters on a video call. “It doesn’t. It needs it as a war chest.”
BAE Systems predicts fall of 15% in first-half profits
BAE Systems has predicted first-half profits down 15% on last year’s figures as a result of the coronavirus pandemic. Production facilities across Britain have seen 90% of employees return to work, with facilities in the US also operating, though productivity levels were affected by the introduction of protective safety measures and by supply chain disruptions.
EasyJet share placing raises £419m
EasyJet has announced a share placing raising £419m, with 59.5m ordinary new shares, representing 15% of existing share capital at a price of 703p per share. This follows the airline announcing that it had a cash position of £2.4bn and net debt of £467m, having already drawn down £600m from the Bank of England’s Covid Corporate Financing Facility. EasyJet made a headline loss of £193m for the first half of the current financial year, an improvement on last year’s loss of £275m.
Wirecard collapses into insolvency
German payments company Wirecard has filed for insolvency after disclosing a $2.1bn (£1.6bn) financial hole in its accounts. The collapse is a disaster for Germany, which has been trying to push Frankfurt as an alternative finance hub after Brexit. Regulator BaFin faces reputational damage too after pushing back on claims made about Wirecard for several years. Whether or not Wirecard’s UK subsidiary, Wirecard Card Solutions, will be insulated from the disaster remains open to question, the Times’ James Hurley reports. Meanwhile, the FT notes that UK and US hedge funds are sitting on more than €1bn of profits gained over the past week after betting against Wirecard.
Pension funds set to dump stocks after epic rally
Analysts have predicted that a wave of selling from pension funds rebalancing their investments in coming weeks will affect stock markets, after a strong rally since late March.
UK subprime lender warns of going concern risks
Non-Standard Finance has cautioned that a breach of its debt covenants threatened its ability to make new loans, with shares in the company falling by over a quarter.
Minibond investors compensated
The Financial Services Compensation Scheme has paid out another £2.5m to more than a hundred individuals who thought they had lost their money in the failed London Capital and Finance bond scheme. It brings the total paid to £5.2m to 281 investors.
LEISURE & HOSPITALITY
Young's raises £88m in share placing
Pub chain Young’s has raised over £88m from investors via a share placing, after stating in May that it was in the process of securing an extra £100m, while some £30m was raised through the government’s Covid Corporate Financing Facility (CCFF). The majority of the chain’s workforce has been furloughed as part of the government’s job retention scheme.
MEDIA & ENTERTAINMENT
Coronavirus rips a hole in newspapers’ business models
The FT looks at how the pandemic has put US newspaper businesses under even more pressure, spurring a search for partners and alternative models.
Commercial landlords receive just 18% of rent
Initial figures from Wednesday’s quarterly payment date reveal commercial landlords were paid just 18.2% of what they were owed, compared with 24.3% on the March payment day. According to Re-Leased, 22.8% of rent owed for office space was paid; 16.2% for industrial space; and 13.8% for retail space. Melanie Leech, chief executive of the British Property Federation, said: “Early indications are that our warnings to Government about the impact of their moratorium on evictions leading to businesses refusing to pay their rent have proved justified. There is no excuse for office occupiers not to meet their legal obligations, and even in the retail and hospitality sectors at the sharp end of this pandemic, we know that there are well-financed tenants who can pay their rent but are choosing not to do so.”
IMF: Global debt surging to 'unmanageable' levels
The International Monetary Fund has warned that businesses and households alike are facing catastrophe, after racking up “unmanageable” debts during the severe recessions triggered by COVID-19. The IMF's gloomy financial stability assessment added that a likely surge in insolvencies will “test the resilience” of the banking industry, despite widespread efforts to prop up balance sheets since the 2008 crash. It added: “Some banks have already started to provision more for expected losses on their loans... This is likely to continue as banks assess the ability of borrowers to repay their loans, while also accounting for the support that governments have given households and companies”. It also said that an ongoing disconnect between financial markets and the “real” economy could lead to a correction in asset prices.