BANKING
Mortgage rates increased after gilt yields rise on inflation data
Higher-than-expected UK inflation data pushed up gilt yields on Thursday, prompting lenders to hike rates on new mortgages. Markets were spooked by unexpectedly strong inflation data on Wednesday showing that prices rose by 8.7% last month, significantly more than the Bank of England's expectations of an 8.4% increase. Britain's borrowing costs are now the highest in the G7 for the first time since 2007, with the yield on ten-year debt up by almost 0.2 percentage points to 4.37%, putting it above Italy's rate of 4.35%. Britain's inflation rate is also the highest in the G7 and traders now expect interest rates to rise to 5.5% by the end of the year, up from 4.5% currently. Lloyds, Virgin Money and Halifax all announced small mortgage rate rises on Thursday, as did Nationwide Building Society. Gary Greenwood, a banking analyst at Shore Capital, said: “Other banks will need to follow suit if swap rates stay at their new level, which will push up the cost of borrowing for homeowners that have mortgages and so squeeze household finance.”
FCA proposes mortgage and loan support for struggling customers
Banks and building societies in the UK may be required to provide support to customers struggling to repay their mortgages and loans as interest rates rise amid the cost of living crisis, according to the Financial Conduct Authority (FCA). The FCA has proposed new rules to cement safeguards first introduced during the pandemic to ease pressure on borrowers. The proposals will require lenders to provide appropriate support to financially struggling customers, including making reduced or no payments temporarily or changing mortgage or loan terms. The FCA has also secured up to £47m of redress from 17 lenders for over 195,000 customers for failures in supporting customers in difficulties. A public consultation on making the temporary guidance permanent closes in July and the FCA said it expects the new rules to come into force in the second half of 2024. "Our proposals build on and enhance our expectations of firms to deliver good outcomes for customers in financial difficulty," said the FCA.
New laws may force banks to ensure customers have access to cash
Amendments to the Financial Services and Markets Bill aim to grant the Financial Conduct Authority greater powers to ensure that High Street branches continue to offer free cash withdrawal and deposit services. Economic Secretary to the Treasury, Andrew Griffith said: “The convenience and speed of digital payments opens a world of opportunity for people and businesses, but the reality is that for the foreseeable future many still depend upon the ability to withdraw or deposit cash. That is why we are bringing forward new laws that will ensure everyone has reasonable access to be able to withdraw and deposit cash for free. This is especially important for those living in rural communities, the elderly and households who rely upon physical cash to manage their finances.”
Starling Bank boss steps down to avoid conflict of interest
Anne Boden, the chief executive and founder of Starling Bank, is to step down at the end of next month to avoid concerns over a possible conflict of interest, given her 4.9% ownership of the bank and her holding 18.5% of the voting rights in the group. The announcement comes as Starling reported a record six-fold increase in pre-tax profits to £195m in the year to March 2023, while revenues more than doubled to £453m. “Modern-day governance is all about the board setting the strategy and the CEO carrying it out and as a major shareholder that’s very, very difficult if you’re also the CEO,” she said, adding that UK regulators had not raised her stake in the bank as an issue.
INTERNATIONAL
First Citizens to cut 500 jobs at SVB US
First Citizens, the new owner of Silicon Valley Bank's US operations, is cutting around 500 roles held by former SVB workers. The job cuts amount to around 3% of the company's total workforce. The failure of SVB, along with two other US banks, triggered fears of a more widespread banking crisis, which forced authorities to step in. First Citizens' chief executive Frank Holding highlighted the problems faced by SVB earlier this year and said the cuts will affect: "select SVB corporate functions and do not include any personnel in client-facing positions."
RBC and CIBC report Q2 profit drop
Royal Bank of Canada and CIBC reported a drop in Q2 profit due to tough economic conditions. RBC set aside C$600m in bad loan provisions, while CIBC's provision for credit losses stood at C$438m, up C$135m from a year ago. RBC's net income fell 14% to C$3.65bn, while CIBC's adjusted net income fell to C$1.63bn from C$1.65bn a year ago. Both banks noted a rise in expenses related to technology investments and employee-related costs. "The banks are preparing for more borrowers falling behind on repayments," said an expert.
FINANCIAL SERVICES
Financial lifeboat scheme reduces industry levy by £208m
The Financial Services Compensation Scheme (FSCS) has reduced the annual levy for 2023/24 by £208m to £270m. The reduction is partly driven by an increased surplus from the 2022/23 levy being carried over into 2023/24, which has reduced the amount of money the FSCS now needs to raise to cover compensation costs. The FSCS said it is continuing to see increasingly complex firm failures, for example within defined-benefit pension advice areas, which can take significant time and expertise to investigate. Caroline Rainbird, chief executive of FSCS, said: “The levy enables FSCS to continue to provide a trusted compensation service that helps build confidence in the financial services industry, particularly during economic and market volatility."
AJ Bell profits up 61%
AJ Bell’s pre-tax profit increased by 61% to £42m in the six months to March 31 while revenue surged by 37% to £103.6m, boosted by new customers and higher interest returns from cash balances. Assets under management were up 7% to £73.8bn and the company is now looking at paying an interim dividend of 3.5 pence per share, a 26% jump on the prior year. The online brokerage said retail investors have been increasing their investment in gilts and fixed-income products as they seek out higher returns and lower risk. Michael Summersgill, chief executive at AJ Bell, said the results “demonstrate the strength of our business model and how our diversified revenue streams enable us to perform well in a range of different market conditions.”
Ministers look at reshaping pensions lifeboat to boost investment
The City minister has urged pension funds to embrace a “culture of risk-taking” amid fears that a reluctance to put money in the stock market is holding the economy back. Andrew Griffith spoke with the Telegraph about Treasury plans to bolster returns for savers using the industry lifeboat, the Pension Protection Fund (PPF), which currently protects people in retirement schemes when their employer goes bust. Jeremy Hunt, the Chancellor, is understood to be considering plans to hand control of underperforming schemes to the PPF which would then subsume the assets into a new superfund that can invest in a broader range of UK high growth assets.
LEISURE & HOSPITALITY
Paddy Power fined for targeting vulnerable gamblers
The Gambling Commission has fined PPB Counterparty Services, which trades as Paddy Power and Betfair, £490,000 for breaching social responsibility rules after Paddy Power sent a promotional push notification to customers who had signed up to exclude themselves from gambling, inviting them to bet on a football match. Ian Brown, chief executive of parent company Flutter in the UK and Ireland, said: "Flutter's ambition is to lead the industry in safer gambling and we apologise for this mistake."
REAL ESTATE
Workspace sees rental income soar
Workspace Group, which owns buildings in various parts of London, has seen rental income jump 34% to £116.6m in the year to March 31. The FTSE 250 firm has buildings in 76 locations in London and the South East and offers flexible space that firms can fit out. Workspace boss Graham Clemett said the landlord has observed high demand for space at not only City and West End sites, but also in boroughs beyond zone one. He said interest for new and bigger offices is coming from a large range of sectors, including tech, fashion, architecture and more. Clemett said Workspace will continually invest to upgrade and regenerate properties to meet the needs of customers and environmental standards.
RETAIL
Boohoo founders paid £1m bonuses despite missing targets
Boohoo.com founders Carol Kane and Mahmud Kamani were paid £1m each in bonuses, equivalent to their annual basic salary, despite missing financial targets. The company's annual sales fell 11% to £1.8bn, with a 9% decline in the UK. The remuneration committee awarded the bonuses after deciding that the amount suggested by the incentive scheme's formulae was “not reflective of the overall performance of the management team”. The committee said the management team were awarded half their potential maximum bonus of double their salary as they had been “very agile in driving cost reductions across the group, which has in large part preserved the profitability of the business in such difficult economic circumstances” by reducing stock, net debt and costs.
ECONOMY
BoE must push back against high inflation - Haskel
Monetary Policy Committee member Jonathan Haskel has warned that the Bank of England needs to push back against the risk of high inflation becoming unexpectedly sticky and may need to raise interest rates further. Haskel said that inflation in Britain is too high and that he prefers to lean against the risks of inflation momentum. He also said that the ability of the economy to grow without creating excess inflation appears to have weakened. The Bank of England has raised rates 12 times since December 2021, taking them to 4.5%, and markets now expect rates to reach 5.5% by November. Haskel said the Bank remains committed to bringing inflation back to the 2% target.
Germany slips into recession
German output fell by 0.3% in the first three months of this year following a contraction of 0.5% at the end of 2022, putting the country in a technical recession. High energy prices and gas shortages have weighed on growth and dragged down consumer spending. The latest figures show household consumption fell by 1.2% compared with the previous quarter while government spending dropped by 4.9%. Andreas Scheuerle, an analyst at the German asset management company DekaBank, said: “Under the weight of immense inflation, the German consumer has fallen to his knees, dragging the entire economy down with him.”
OTHER
UK crypto fraud losses jump 40%
Data provided by Action Fraud show UK losses to crypto fraud increased more than 40% over the past year, surpassing £300m for the first time.