BANKING
FCA tells banks to accelerate progress on improving rates for savers
The Financial Conduct Authority (FCA) on Thursday told Britain’s largest banks to do more to improve returns for savers following months of criticism over the gulf between the cost of mortgages and rates offered on easy-access savings accounts. In a statement after the meeting with senior executives from Barclays, Lloyds Banking Group, NatWest and HSBC, the regulator said that “those in the room recognised that they needed to do more to help their consumers access the best rates.” The FCA is set to publish a review into savings rates at the end of July, but Sheldon Mills, head of competition at the FCA, said the regulator would not be intervening directly in the market.
Challenger banks attract customers with higher savings rates
Many challenger banks in the UK are attracting customers who are abandoning high street lenders due to their low savings rates. The five largest banks in the UK offer rates between 0.9% and 1.75%, while challenger banks such as Monzo, Revolut, Starling, and Atom Bank offer rates of 3.25% or more. This has led to an increase in customer base for challenger banks, with Atom Bank seeing an 82% increase in customers and Monzo attracting 800,000 customers since February. Mark Mullen, CEO of Atom Bank, believes that encouraging customers to move their money to better rates is the best way to stop high street banks from profiting at their expense. Other challenger banks, such as Chase UK and Ford Money, have also seen a significant increase in customers.
Hunt to scrap key MiFID II rule
Jeremy Hunt, the Chancellor, will announce on Monday that EU legislation requiring financial firms to separate the cost of investment research from trading expenses will be rolled back as part of the UK Government’s efforts to boost the attractiveness of the City. The so-called “unbundling” of research and trading services was a key feature of the EU’s Markets in Financial Instruments Directive, known as MiFID II. Critics say the change reduced the amount of investment research available, which in turn made it more difficult for companies to attract investors. The move is a key recommendation of a review into rules around investment research conducted by lawyer Rachel Kent. Mr Hunt is also due to reveal a pledge by insurers to invest billions of pounds into startups and infrastructure projects.
Ministers consider scrapping PEP rules
The Telegraph details how the children of peers are being denied bank accounts due to EU rules on "Politically Exposed Persons". Lord Kirkhope said one of his sons had been denied a bank account after they revealed that he was their father while Lord Forsyth, a Tory peer, revealed that his daughter had been asked if she would move her account as a result of being related to him. Lord Sharkey only managed to keep his account with NS&I after seeking help from the Treasury. Their testimony comes as pressure increases on the ministers to scrap the rules altogether after the prominent Brexiteer Nigel Farage complained that he was politically targeted by partisan institutions. The Mail cites Ben Keith, a lawyer who has represented various individuals who have seen their accounts closed with little explanation, who said: “The main flaws of the system are the overreliance on the third party agencies and a lack of any proper mechanism to challenge de-banking.”
PRIVATE EQUITY
Global VC funding drops by 48% in 2023
Global venture capital funding has nearly halved in the first half of 2023, declining by 48% to $173.9bn, according to PitchBook. The drop in investment and deal numbers is attributed to investor hesitancy and reduced demand due to higher interest rates. Despite the success of OpenAI's ChatGPT, which sparked interest in AI start-ups, funding for such companies also declined. Latin America experienced the largest drop with an 86% slump, while the US and Europe fell 65% and 69% respectively. The IPO drought and lack of exit opportunities have made investors more selective, leading to a decline in venture funding. Funding activity has fallen across all stages, with the first seed round seeing the biggest drop in the number of deals in the US. However, a moderate pickup in demand is expected in the second half as more companies run low on cash and need to come to market to finance their plans.
INTERNATIONAL
French bank stocks fall after JPMorgan releases Q2 profit estimates
Shares in BNP Paribas, Société Générale, and Credit Agricole fell after JPMorgan released second-quarter profit before tax estimates. JPMorgan placed BNP and Credit Agricole on Negative Catalyst Watch, suggesting short-term caution, with Q2 profit before tax estimates below consensus. "Our profit before tax estimates are also 13% below consensus" for Société Générale, it added. BNP Paribas shares were down 4.2%, Credit Agricole fell 2.8%, and Société Générale lost 3%. JPMorgan expects a decline in French retail revenues due to margin pressures and a decrease in loan volumes, as well as weaker performances in corporate and institutional banking.
ECB backs new EU rules for closing smaller banks
The European Central Bank (ECB) has backed proposed new EU rules for closing down smaller banks when they fail, but has called for more ambition and wider application across the bloc. The EU's proposal aims to establish that industry-funded deposit guarantee schemes take a loss earlier when a bank fails, a crucial change for mid-sized banks that lack resources such as bonds that can be written down. The ECB welcomed the changes but believes they should go further and make it easier for a failing bank to be taken over.
US bank stocks slip ahead of Q2 results
Share in US banks fell on Thursday as concerns over the health of the lenders persists. The KBW Regional Banking Index fell 3% to its lowest since June 23, adding to its year-to-date loss of 25.9%. The S&P 500 Banks Index slipped nearly 2.8%. "Net interest margin pressure is likely to be greater than most expect as the 'honeymoon' period of the tightening cycle, in which assets reprice higher while liabilities repricing lags, has come to an end," said analysts at brokerage Raymond James.
CONSTRUCTION
UK housing activity contracts
The S&P Global/CIPS UK construction purchasing managers’ index fell to 48.9 in June, from 51.6 the previous month. Tim Moore, economics director at S&P Global Market Intelligence, said “weaker housing market conditions in the wake of higher borrowing costs acted as a major constraint on UK construction output in June.” Matthew Pointon, senior property economist at Capital Economics, said the drop in housebuilding suggests that housebuilders anticipated “a severe pull back in demand due to higher mortgage rates.”
FINANCIAL SERVICES
Review finds asset managers lack liquidity oversight
The Financial Conduct Authority (FCA) has found that asset managers are not adequately monitoring the liquidity of their funds, putting investors at risk. A multi-firm review by the regulator revealed that many mutual fund houses did not properly use their liquidity management tools and failed to understand the risks of less liquid assets in their portfolios. Some firms assumed they would always sell their most liquid assets first, without considering the knock-on effects. The FCA also highlighted inconsistencies in portfolio stress testing methodologies and inadequate board-level discussions on liquidity risk. The review calls for improved oversight and risk management in the asset management industry.
CAB Payments drops 10% on first day of trading
UK fintech CAB Payments made its debut on the London Stock Exchange on Thursday in what was hailed as a symbolic win for the City. The listing valued the company at £851m, however, shares dropped 9.6% after raising around £300m. The money transfer platform offered its shares at £3.35 but by market close the stock price was about £3.03 per share. The listing gave a partial exit to CAB’s owner, the private equity group Helios.
SEC to vote on new rules for money-market mutual funds
The US Securities and Exchange Commission (SEC) is set to impose new rules on money-market mutual funds, aiming to prevent outflows during market turmoil. The new rules would increase the percentage of total assets that funds must maintain in cash or liquid assets, remove the ability to charge fees for redemptions, require the use of swing pricing mechanism, and mandate government funds to convert to a floating net asset value. The SEC will consider comments before finalizing the rules. The SEC plans to finalize the changes on July 12.
MEDIA & ENTERTAINMENT
Twitter threatens to sue Meta over “copycat” Threads
Twitter has threatened legal action over the alleged use of its intellectual property by Threads – the new rival to Twitter launched by Meta. Mark Zuckerberg’s company was also accused of hiring dozens of former Twitter employees who “had and continue to have access to Twitter's trade secrets and other highly confidential information.”
PROFESSIONAL SERVICES
Robert Walters posts lower Q2 net fee income
British recruiter Robert Walters reported a 10% drop in net fee income for the second quarter of 2023. The company had previously warned of significantly lower profit for the fiscal year, citing reduced levels of candidate confidence and lengthening time to hire. Despite these challenges, CEO Toby Fowlston believes that market fundamentals, including job vacancy levels and candidate shortages, remain strong. The UK net fee income also saw a 21% decline, impacted by macro-economic effects such as high inflation and interest rates. Robert Walters specializes in the legal, accountancy, and technology sectors. The company expects an increase in demand and candidate movement once market confidence recovers.
RETAIL
Bailey: Retailers are profiteering from inflated fuel prices
The Governor of the Bank of England has accused some retailers of profiteering from inflated petrol and diesel costs. Andrew Bailey told the BBC that regulators need to step in to help curb inflation. “If you look at petrol prices some sellers of petrol have possibly been charging too much for it,” he said. “Now that’s important [not overcharging], it helps us with inflation but it’s just fairer if these things are tackled.” Mr Bailey’s comments came just days after the Competition and Markets Authority (CMA) accused Britain’s biggest supermarkets of making around £900m by failing to pass on the falling wholesale fuel costs to consumers at the pumps.
Retail footfall declines amid heatwave and changing shopping patterns
Retailers in the UK saw a 1.9% drop in visitors last month, attributed to the heatwave and the adjustment of shopping patterns in the cost-of-living crisis. Analysis shows that total footfall across all retail destinations decreased by 1.9% in June, with high street footfall increasing by 0.6% but not enough to offset the drops in outdoor retail parks and shopping centres. In May, high street footfall dropped by 0.5%, while retail parks and malls experienced declines of 4.1% and 4.8% respectively.
ECONOMY
Households face years of food price pain
Food prices will continue to rise for another two years, according to the OECD. Prices have started to come down in wholesale markets, but are not set to return to their pre-Covid level in real terms until 2025 at the earliest. Meanwhile, a survey by the Bank of England found CFOs at UK companies expect to increase prices by 5.3% over the next year, down just 0.1% on a poll for the three months to May. Finance chiefs also expect workers’ wages to grow by 5.3% in the year to come, while actual wage growth increased to 7.1% in June, from 6.7% in May.
OTHER
Governor reveals BoE's net zero drive
Andrew Bailey, the Governor of the Bank of England, has revealed proposals to help the institution reach its green targets by 2040. The plan includes installing heat pumps to replace the current gas-fired system and revamping the historic offices in the City of London. The Bank is also considering the installation of a ground source heat pump to deliver heating and cooling to significant parts of the building. Other measures to cut emissions include reducing air travel, providing climate training to staff, and linking senior managers' pay to their success in decarbonising. The Bank's workers are typically in the office for two days a week as it embraces flexible working. The institution has fully embraced home working and aims for all colleagues to spend at least half their time working together as a team. The Bank has also made efforts to recruit candidates from areas of lower social mobility to broaden opportunities.