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Daily News Roundup: Friday, 28th October 2022

Posted: 28th October 2022

BANKING

Lloyds profits fall 26% as bad debt charges rise

Lloyds Bank suffered a 26% fall in pre-tax profits in the three months to the end of September, primarily driven by the £668m of charges the bank took to guard against this risk of unpaid debts. Profits fell to £1.5bn, well below a forecast of £1.8bn with shares down as much as 4% following the update. The lender was pessimistic about the UK economy, predicting UK house prices will fall by 7.9% next year and in a worst-case scenario would drop almost 18%. It also expects a 1% fall in GDP. Inflation will peak at 10.7% and the Bank of England will increase the base rate to 4% in the final quarter of 2022, the lender added, while unemployment will rise to more than 5% next year. Lloyds posted a 19% rise in net interest income to £3.4bn for the quarter, but said this was offset by one-off charges.

Regulators warn Sunak off jeopardising independence

The head of the Financial Conduct Authority (FCA) and a deputy governor of the Bank of England have warned Prime Minister Rishi Sunak against introducing new laws enabling ministers to override City regulators. Nikhil Rathi and Sam Woods used speeches at Mansion House to warn that the proposal would undermine their independence. Mr Woods, who runs the Bank's Prudential Regulation Authority, said a “call-in” power would represent a “significant shift away from a model of independent regulation” and risked undermining the UK’s international credibility. Mr Rathi said: “It is vital that this independence and agility at speed is not undermined by any proposed call-in power.” 

Popularity of offset mortgages grows

Lenders are reporting a rise in applications for offset mortgages as homeowners seek to lower their monthly payments and access lower interest rates. Offset mortgages require borrowers to deposit some of their savings into a linked account. The savings balance is used to offset the value of the mortgage debt, so homeowners pay interest on their mortgage balance minus their savings balance. The average two-year fixed-rate offset deal charges 5.52%, compared with 6.5% for a traditional loan, according to the analyst Moneyfacts. Monthly applications for some mortgages quadrupled compared to last year, the Telegraph reports.

INTERNATIONAL

Credit Suisse looks to cut 9,000 jobs amid $4bn loss

Credit Suisse revealed its restructuring plans on Thursday, alongside a poor set of third quarter results. The bank suffered a SFr 4bn (£3.5bn) net loss in the three months to the end of September. The lender said it was planning to raise SFr4bn from a share sale while Saudi National Bank will invest SFr1.5bn in return for a 10% stake. The radical new strategy will also involve scaling back Credit Suisse’s investment banking business - a part of which will be spun out with its First Boston business, and focussing on wealth management and its domestic market. The bank will also reduce its workforce by about 9,000 by 2025, from 52,000 to 43,000. The news sent shares down by more than 10% in early trading in Zurich.

ECB doubles interest rates to 1.5%

European Central Bank rate-setters agreed to lift their interest rates by 0.75 percentage points to 1.5% yesterday, equalling last month’s record rise. The euro dropped and European government bond yields slid after the announcement, which was in line with market expectations. Inflation in the euro area hit 9.9% in September, up from 9.1% in August. The ECB also decided to retroactively change the term of a €2.1tn ultra-cheap loan scheme in an attempt to encourage commercial banks to repay early. Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said the move was “risky” while the FT claims some banks believe such retroactive changes will damage the credibility of the ECB’s refinancing operations.

Danske Bank books $1.9bn provision for money laundering case

Danske Bank announced on Thursday that it would book a 14bn Danish kroner ($1.9bn) provision in the third quarter for fines related to the bank's involvement in a massive money laundering scandal in Estonia. "The discussions with U.S. and Danish authorities related to the Estonia matter are now at a stage where Danske Bank can reliably estimate the total financial impact of a potential coordinated resolution," CEO Carsten Egeriis said.

Swedbank's quarterly profit tops forecast

Swedbank yesterday reported a better-than-expected operating profit for the third quarter, underpinned by strong income from mortgages. Profit rose 24% to 8.70bn crowns ($801m) from 7.03bn crowns posted last year, beating the 7.19bn crowns predicted by analysts in a Refinitiv poll.

Sabadell reports Q3 net profit doubled

Spain’s fourth-largest bank reported third-quarter net profit had more than doubled to €317m, beating forecasts of €221m. Sabadell's performance was supported by mortgage growth in Spain along with lower loan-loss provisions and costs, thanks to previously announced savings plans.

AUTOMOTIVE

UK car production goes into reverse

Figures from the Society of Motor Manufacturers and Traders show car production in the UK fell in September for the first time in five months. Just 63,125 units were made in British vehicle factories last month - nearly half the levels seen in 2019, before the pandemic hit. SMMT Chief Executive Mike Hawes said: “Billions of pounds and thousands of jobs are dependent on the automotive sector and, increasingly, on electrified vehicle production.” He went on to call on the Government to work together with industry to create a competitive business environment for UK automotive manufacturing.

FINANCIAL SERVICES

Finance firms urge regulators to prioritise net-zero

Finance firms have called on regulators to make net-zero a central objective if the UK is to avert the worst economic damage of climate change. In a submission to MPs as the landmark Financial Services and Markets Bill passes through parliament, bosses from firms including Hargreaves Lansdown, Aviva Investors, Phoenix, Tide, Aegon and PensionBee said the bill offered a “once in a generation opportunity” to formalise the role of regulators in the net zero transition.

OCC to establish dedicated fintech office

The U.S. Office of the Comptroller of the Currency will launch a division on financial technology in early 2023. The new office will build on the agency's pre-existing Office of Innovation, the banking regulator said. “The establishment of this office will enable us to be more agile and to promote responsible innovation, consistent with our mission," said Michael Hsu, the acting comptroller of the currency, in a statement.

MEDIA & ENTERTAINMENT

Meta’s value plunges by $89bn amid falling sales and rising costs

Shares in Meta dropped 25% on Thursday wiping more than $89bn from the company’s market capitalisation. The owner of Facebook reported another quarter of declining revenues late on Wednesday and failed to convince investors that big bets on the metaverse and artificial intelligence were paying off. Meta's sales shrank by 4% in the three months ending in September to $27.7bn (£24bn), while profits halved as buyers trim advertising budgets in the face of economic uncertainty. Founder and CEO Mark Zuckerberg warned the company faced “near-term challenges on revenue” but said “the fundamentals are there for a return to stronger revenue growth”. The Telegraph points out that hedge funds made $1bn betting against Meta over the last two days alone.

Musk’s Twitter takeover complete, fires leadership

Elon Musk closed his $44bn takeover of Twitter on Thursday and immediately sacked CEO Parag Agrawal. Finance chief Ned Segal and Vijaya Gadde, the head of legal policy, trust, and safety and Sean Edgett, the general counsel, were also fired.

REAL ESTATE

Country homes selling below asking price

New analysis reveals that rising mortgage rates mean the share of properties selling below asking price in October hit 47%, up from 40% a month earlier. This was the highest share since March 2021 and a 15 percentage point jump since April. The research found the drop was led by falling demand for country properties, as the pandemic race for space has reversed and buyers have returned to towns and cities. The average country property sold in 2022 has achieved 98.6% of its asking price – down from 99.9% in 2021. This fall was the largest decline across any type of property. City properties sold for 99.4% of their asking price while homes in towns and suburbs achieved 99.6%. These figures were down by 0.2 and one percentage point respectively, when compared to 2021.

RETAIL

Amazon shares plummet after dismal sales forecast

Shares in Amazon dropped 20% on Thursday after the company issued stark revenue forecasts for the remainder of the year and reported a fall in year-on-year net income. The e-commerce giant reported sales rose 15% to $127.1bn, but its international business shrank and growth slowed in its lucrative cloud services unit. Shares fell 18% in after-hours trade.

ECONOMY

Sunak explores tax rises and spending cuts of up to £50bn

Sources have told the FT that Rishi Sunak and Jeremy Hunt are considering tax hikes and public spending cuts worth up to £50bn a year in an attempt to fill the hole in the public finances. The £50bn figure is an increase on Treasury calculations of a fiscal hole of between £30bn and £40bn because attempts to fill it will worsen the economic outlook and consequently hit future tax revenues. The Chancellor is reportedly looking at hiking the windfall tax on oil and gas companies and extending the period over which it is paid. Meanwhile, Tory chairman Nadhim Zahawi intimated that the pension triple lock would remain in place because pensioners were “uniquely vulnerable” and the Prime Minister and the Chancellor “will be very, very conscious of that fact."

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