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Daily News Roundup: Friday, 29th July 2022

Posted: 29th July 2022

BANKING

One in 12 firms default on Covid loans

Taxpayers have been left to foot a £421m bill to cover Covid debts, after one in 12 businesses defaulted on state-backed emergency loans. Data from the Department for Business, Energy and Industrial Strategy show that around 8% of 1.6m borrowers – roughly 130,000 – failed to repay their debts as of March this year. Around £352m were made for bounce back loans, the scheme which accounted for £47bn of the £77bn total lent to businesses through the programme. High street banks and online lenders, which distributed the loans on behalf of the government, have claimed a combined £421m of taxpayer cash to cover the defaults. Metro Bank, Barclays and Starling Bank have claimed the most money to date on bounce back loans, with the government paying out £122m, £88m and £61m respectively. The proportion of claims relative to their total loans varied, with Metro having claimed an estimated 8.5% of the total, while the amount claimed by Barclays and Starling totalled an estimated 0.8% and 3.8%, respectively. Tide and Capital on Tap claimed back about a quarter of the total money they each lent to businesses through the bounce back scheme. About 18,000 of the 1.5m bounce back loans claimed were flagged for suspected fraud by lenders, according to the British Business Bank. While it was previously estimated that fraud losses could exceed £4.9bn, more recent estimates place the total at about £3.5bn.

Barclays profits hit by higher costs and litigation expenses

Profits at Barclays have fallen by 24% to £3.7bn after it took a £1.9bn hit from a trading error in the US that saw it issuing more financial products than it was allowed to. The lender also revealed it put aside £341m for potential loan losses as the economic outlook has weakened due to inflation. The lender also reported a total 31% slump in investment banking fees to £1.2m in the first half of the year, reflecting a slowdown in deals and takeover activity. Despite this, overall group sales rose by 23% to £6.7bn and Barclays' trading arm saw sales rise by almost three-quarters. The bank's total income increased 17% on the previous year to £13.2bn. Barclays said annual costs are set to rise to around £16.7bn - up from previous guidance for £15bn - amid a weaker pound against the US dollar. Barclays chief executive CS Venkatakrishnan said: “This has been a strong first half … The broad-based income growth that we achieved in the first quarter continued across all three operating businesses into the second quarter.”

Metro Bank reduces losses

Metro Bank narrowed first-half pre-tax losses and expects to reach monthly break-even in the first quarter of next year. It reported a loss of £60m for the six months to the end of June, down from £139m previously. Revenues were up 31% to £236.2m in the first six months of the year, compared to £179.8m the year prior.

INTERNATIONAL

Spanish banks see profits rise

Santander’s net profit in Q2 rose 14% compared to the same period a year ago thanks to a higher revenues in Europe and the Americas. The Spanish lender booked a net profit of €2.35bn, up from €2.07bn in the same quarter last year. Elsewhere, Spain's Banco Sabadell said its net profit rose 22% in the second quarter from the same period a year ago as lending income was boosted by strong mortgage lending in Spain and a solid performance at its British unit TSB. It saw a net profit of €179m in the April to June period.

AUTOMOTIVE

UK car production falls in H1

The number of cars built in the UK in the first half of the year has fallen by a fifth, according to figures published by the Society of Motor Manufacturers and Traders. The 403,131 new vehicles produced in factories between the start of January and end of June is 95,792 fewer than the same period of 2021, a decline of 19.2%. The main cause is a shortages of key component, most notably semiconductors, with supplies severely limited since the pandemic hit supply chains more than two years ago. A growth in electric vehicle production has boosted the sector, with outputs increasing by a record 44.2% last month. While 32,282 battery-electric models came off UK production lines in the first half of the year - an increase of 6.5% year-on-year - EV production represents just 8% of all new cars built in British factories so far in 2022.

FINANCIAL SERVICES

FCA fines three former Carillion executives

The Financial Conduct Authority (FCA) has fined three former executives of Carillion for publishing misleading financial statements before the firm collapsed in 2018. The City watchdog said Carillion “recklessly” published announcements in December 2016, March 2017 and May 2017, adding that these “made misleadingly positive statements about Carillion’s financial performance” and “did not reflect significant deteriorations in the expected financial performance of Carillion’s UK construction business and the increasing financial risks associated with it.” Carillion's former CEO, Richard Howson, was fined £397,800 while former finance directors Richard Adam and Zafar Khan were fined £318,000 and £154,400, respectively. The FCA said it would have fined the company itself £37.9m had it not been in liquidation.

LCF chief faces jail for hiding funds

Michael Thomson, chief executive of failed investment company London Capital & Finance (LCF), faces jail after admitting to concealing £95,000 from investigators. He hid the funds from the Serious Fraud Office, which was investigating the collapse of the company which held around £237m of investors’ funds when it collapsed in January 2019.

PROFESSIONAL SERVICES

FRC reports record financial sanctions of £46.5m

The Financial Reporting Council (FRC) has published its Annual Enforcement Review, with the report showing that the watchdog resolved a record 13 cases in the last year. The FRC also revealed that it imposed record financial sanctions of £46.5m, with this up from £16.5m in 2020/21. The total number of fines handed out by the regulator more than doubled from 28 in 2020/21 to 62. The number of cases opened and closed fell in 2021/22, with the 62 cases closed down on the 103 recorded the year before. This was due in part to a decrease in the number of cases opened, which stood at 69 compared with 95 in the previous year. The report also details how the FRC’s enforcement division has grown by 23% to 64 people as of March 31, up from 52 on April 1 last year. 

REAL ESTATE

House prices almost nine times the average income

Property prices have risen to nearly nine times the average household disposable income, according to Office for National Statistics (ONS) data. In the year to the end of March, the average property in England sold for £275,000, with this 8.7 times the average annual disposable household income of £31,800. In Wales, the median house price was £176,000 – six times the average income of £29,400, while the ratio in Scotland was 5.5 as house prices averaged £166,000 compared to a £30,300 salary. London is the least affordable region, with those in the lowest 10% of earners having to work 40 years to buy an average house. At the other end of the scale, an average-priced home in the North East cost the equivalent of almost 12 years of income. The ONS data shows that UK house prices rose by 12.8% in May, up from 11.9% the month before, hitting an average of £283,000. This is £32,000 higher than the typical price a year earlier.

Hammerson returns to profit

Hammerson has reported a profit of £50m in the first six months of the year. The shopping centre owner endured losses of £376m for the same period in 2021 when it had to write down the value of its sites with coronavirus restrictions still in place. Revenue, however, fell to £62m from £65.3m. The company’s net assets also increased, rising by £55m to £2.8bn. Hammerson reported a 48% increase in like-for-like net rental income, with footfall at the end of the second quarter having reached 90% of 2019 levels. As a result, the company said it had cut administration costs by 20% and reduced its debt by 6% to £1.7bn.

RETAIL

Amazon beats revenue expectations

Amazon has beat expectations on Wall Street by projecting revenue of between $125bn and $130bn in the third quarter, which would amount to growth of between 13 and 17%. It comes as net sales at Amazon rose 7% to $121.2bn during the three months to June, clearing analysts’ expectations of about $119bn. Amazon reported a second quarterly loss of $2bn compared with a $7.8bn profit for the same period in 2021. However, much of that loss was due to its investment in Rivian Automotive, a struggling electric vehicle manufacturer. The company’s online stores business reported a 4% decline for the quarter as it, along with other retailers, struggled with slowing consumer demand and higher costs. 

ECONOMY

Recession fears as US economy shrinks again

The US economy has shrunk for the second quarter in a row, declining at an annual rate of 0.9% in the three months to July. While in many countries two quarters of negative growth would be considered an economic recession, the US has an official arbiter of recessions - the National Bureau of Economic Research (NBER). The NBER defines a recession as a "significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.” President Biden said: “It's no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation,” adding: “But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure.” In the first three months of the year, the US economy shrank at an annual rate of 1.6%.

OTHER

Inflation hits business confidence

Business confidence has fallen below its long-term average for the first time since March 2021, a survey has found. Confidence among businesses fell by 3 percentage points in July to 25% on the index compiled by Lloyds. Half of the businesses polled said inflation, which hit a 40-year high of 9.4% in June, is their biggest concern, followed by an economic slowdown and issues in the labour market which has caused severe supply shortages. Firms are positive they can continue to trade despite their wider concerns about the economy, with the net balance for trading prospects up by 3 percentage points to 37% in July. Businesses also reported a rise in their expectations for wage growth, with 17% expecting average pay to rise by at least 4% - the highest level recorded since the index started tracking wage data in 2018. Paul Gordon, Lloyds’ managing director for SME and mid-corporates, said: “It is important that firms keep a tight rein on input costs where they can and a close watch on profit margins in what are already tough conditions.” Lloyds surveyed 1,200 businesses with a turnover of £250,000 a year. 

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