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Daily News Roundup: Friday, 6th August 2021

Posted: 6th August 2021

BANKING

Bank bonuses rise on the back of strong growth

European banks are building up bonus pools as frantic dealmaking and increased competition for talent pushes lenders to prepare for bumper payouts. Barclays increased its bonus pool by 46% to £1.1bn, while HSBC topped up its bonus pool by $900m in the first half. Standard Chartered said a "normalisation of performance-related pay" during the first half drove an 8% jump in costs, to $5.1bn. UBS boosted pay by $242m in Q2 after booking higher revenues, while Deutsche Bank upped pay and benefits in its investment bank by 6% compared with the same period a year ago. Experts said banks in Europe and Asia are playing catch-up to the United States, where Goldman Sachs increased compensation by $3.5bn on the prior year, while JPMorgan has added $2bn. But advocacy groups for fair pay said a bonus bonanza risked a public backlash at a time when many businesses and individuals are still struggling in the pandemic.

Competition will keep downward pressure on mortgage rates

Tom Howard in the Times reflects on how mortgage rates are likely to remain low as pressure on banks to lend their huge deposits continues. Martin Leitgeb, a banking analyst at Goldman Sachs, comments: “As excess funding within UK ring fences cannot be used for other activities, we believe pressure on asset yields, in particular mortgages, is likely to persist, if not increase.” Howard says banks are not in a position to rein in their lending until rates pick up. Meanwhile, the likes of NatWest, HSBC and Barclays, have reiterated their desires to take a greater slice of the mortgage market.

PRIVATE EQUITY

Private equity’s interest in UK plc is sign of a broken system

Michael Tory says in the FT that the appeal of UK companies to private equity firms is indicative of investment priorities that favour the over-distribution of dividends, weakening the value of UK corporates.

INTERNATIONAL

Crédit Agricole reports highest-ever second-quarter profits

France’s second-biggest bank announced on Thursday that net income more than doubled to €1.97bn from a year earlier and was 60% higher than pre-pandemic levels in the same quarter of 2019. Crédit Agricole’s cost of risk to cover possible defaults was down 67% to €279m, substantially below analysts’ forecasts.

Kakao Bank shares debut at 38% above IPO price

South Korea's Kakao Bank saw its stock debut on Friday at 38% above its IPO price, amid growth expectations for the digital bank's planned mobile mortgage business and other offerings.

Wells Fargo and BlackRock delay return-to-office plans

Wells Fargo and BlackRock have announced a delay to their office returns, with both postponing until the start of October from early September.

AUTOMOTIVE

Chip shortage sees buyers switch to used car market

New car sales have slumped to the lowest level in more than two decades as would-be buyers grow frustrated by the semiconductor shortage and turn to the used car market. Registrations of new vehicles plunged almost 30% in July to 123,296 compared with a year earlier - the lowest level since 1998, according to the Society of Motor Manufacturers and Traders (SMMT).

AVIATION

Qatar Airways grounds Airbus planes over fuselage problem

Qatar Airways has taken over a dozen Airbus A350s out of service after discovering fuselages were “degrading at an accelerated rate”. The Middle East carrier raised concerns about the problem in June and refused to take delivery of another 23 A350s from Airbus until it had been fixed.

FAA imposes cargo restrictions on Boeing 737 MAX planes

The Federal Aviation Administration (FAA) has placed restrictions on all Boeing MAX planes due to concerns over fire risks relating to potentially faulty air conditioning systems.

CONSTRUCTION

Construction growth slows amid shortages

A shortage of skilled staff and materials has slowed the pace of growth in the construction market. The IHS Markit/Cips UK construction purchasing managers’ index dipped to 58.7 in July - which still represents growth but shows a notable slowdown after June’s 66.3, which was a 24-year high. Tim Moore, economics director at IHS Markit, said: “The loss of momentum spanned all major categories of construction work and was most pronounced in the housebuilding sector.”

FINANCIAL SERVICES

FCA bans trading platform from UK

The Financial Conduct Authority has banned Cypriot firm BDSwiss from operating in the UK .The company used a network of “introducers” on social media to attract British customers into trading contracts-for-difference, a type of high-risk derivative that allows people to make wagers on markets, leading to heavy losses. “The BDSwiss group used the fact that one of its firms was regulated in the UK to convey legitimacy on the group as a whole,” the regulator said. “However, 99% of UK consumers taken on by the group traded through the group’s overseas entities. These overseas firms had no authorisation to provide regulated services in the UK and consumers who traded with the overseas firms lost the protections given to consumers who trade with an authorised firm.”

AIG profit beats estimates

AIG has exceeded second-quarter profit estimates, driven by strong performance in its general insurance and life and retirement units. The US insurer posted underwriting income of $463m in its general insurance business in the quarter, compared with a loss of $343m a year earlier, when it booked large losses related to the pandemic.

Pay-later credit services need regulating now

An FT editorial calls for tighter regulation of “buy now pay later” firms asserting that terms of credit are confusing and leave consumers at risk.

HEALTHCARE

CMA accuses Pfizer and Flynn of overcharging NHS for anti-epilepsy drugs

The Competition and Markets Authority (CMA) has accused pharmaceutical companies Pfizer and Flynn of illegally overcharging the NHS for vital anti-epilepsy drugs by abusing their dominance in the market to raise prices overnight. The watchdog confirmed its 2016 finding that the pair exploited a loophole to charge unfairly high prices for phenytoin sodium capsules by debranding the drug, known as Epanutin, in 2012 so it would not face price regulation.

LEISURE & HOSPITALITY

UK live events sector promised Covid insurance scheme

Music festivals and other live events are to be protected by a Government-backed insurance scheme if they are forced to cancel because of Covid. It will begin next month with a £750m budget to cover cancellation costs if events are legally unable to happen due to Covid restrictions. The live events industry, which has repeatedly called for such a plan, has broadly welcomed the announcement.

MANUFACTURING

Aviation pains but "mini-nukes" brighten horizon for Rolls-Royce

Rolls-Royce has said it no longer expected to generate £750m in free cash flow next year as the aviation industry struggles to recover. However, CEO Warren East is driving work on a Rolls-led consortium to develop "small modular reactors" (SMRs) aimed at meeting the growing demand for green energy from decarbonisation. "SMRs are a massive opportunity that could be multiples of the size of our civil aerospace large engine business," he said.

MEDIA & ENTERTAINMENT

DMGT agrees sale of disaster analytics unit to Moody’s

The Daily Mail and General Trust is to sell RMS, which helps insurers to estimate the risk of extreme weather events, to American credit ratings agency Moody’s for £1.4bn. The disposal of RMS completes the first step in Lord Rothermere’s plans to take the publisher off the London Stock Exchange.

REAL ESTATE

UK property market and tax receipts boosted by stamp duty holiday

New figures show Government income from stamp duty surged despite the tax holiday introduced in July 2020. Results for the second quarter of 2021 show that total Stamp Duty Land Tax (SDLT) transactions jumped 165% compared to the same period last year and are up 9% compared to the first quarter. Tax receipts totalled £2.85bn despite the proportion of eligible transactions falling from 64% to 37% - an increase of 92% year on year for the second quarter. The Government also raised an additional £19m from a 2% surcharge on non-resident purchasers of properties introduced in April 2021.

RETAIL

Mike Ashley to hand control to future son-in-law

Mike Ashley is to step down as CEO of Frasers Group next year and hand the reins to his future son-in-law, Michael Murray. Ashley will remain on the board as an executive director.

ECONOMY

Bank of England signals need for “modest tightening”

The Bank of England Governor remains convinced that the spike in inflation is temporary despite it being forecast to rise to a ten-year high by Christmas. The Bank has been forced to rip up its previous estimates in May that inflation would peak at 2.5% by the end of the year and is now predicting a sharp climb to 4%. Andrew Bailey conceded that the inflation rise was "marked by historical standards" but said price pressures would fall away next year as energy costs eased and supply chain bottlenecks resolved. On Thursday the Bank’s Monetary Policy Committee shifted position and admitted that "some modest tightening of monetary policy" would be needed over the medium term. Markets are betting on a first post-pandemic rate rise in the second half of next year, but Sanjay Raja, UK economist at Deutsche Bank, said: "Risks are clearly shifting to an earlier move – particularly if the economy outperforms in line with Bank expectations."

Shortage of workers drives up starting pay at record rate

The latest jobs report from the Recruitment and Employment Confederation reveals starting salaries are rising at the fastest rate in at least 24 years due to shortages in candidates. Demand for staff hit a record high as the economy bounced back after pandemic restrictions were eased, but employers complained that a chronic shortage of workers had caused a sharp increase in wages. The rapid decline in candidate numbers had been “driven by concerns over job security due to the pandemic, a lack of European workers due to Brexit and generally low unemployment”, the report said, while furlough was also blamed for causing stickiness in the labour market.

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