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Daily News Roundup: Monday, 11th October 2021

Posted: 11th October 2021

BANKING

Homeowners face steepest mortgage rate rise since 2008

Experts predict a 0.5 percentage-point rise in the interest rate on a new two-year fixed rate mortgage to 1.7% by the end of next year, adding almost £50 a month to the cost of paying off a typical £200,000 mortgage. The effective borrowing cost on all mortgages could be 0.8 points higher at the end of 2022 than it presently is, according to Samuel Tombs, economist at Pantheon Macro. This would mark the biggest surge in mortgage costs since the property market collapse in 2008. Geoff Yu, a macro strategist at BNY Mellon, added: “Household cashflow may not be in a position to take more hits, but that is exactly the risk posed by early hikes in quick succession. Variable-rate mortgages linked to the Bank of England base rates still comprise about a fifth of all mortgages outstanding – not insignificant.”

Banks will need to mitigate cloud risks

The Bank of England has said new regulation may be required to deal with operational risks from banks relying on outsourced cloud computing from Amazon, Google, Microsoft and others. "Regulated firms will continue to have primary responsibility for managing risks stemming from their outsourcing and third-party dependencies," the BoE's Financial Policy Committee said in a statement. "However, additional policy measures, some requiring legislative change, are likely to be needed to mitigate the financial stability risks stemming from concentration in the provision of some third-party services."

Banks prepare £7bn dividend bonanza

Senior bankers are in talks with the Bank of England about releasing cash set aside for bad loans in time for their quarterly earnings report in around two weeks, according to the Mail on Sunday. Lloyds Banking Group, HSBC, Barclays, NatWest and Standard Chartered are set to report pre-tax profits totalling £33bn for 2021, paving the way for an estimated £7bn in dividend payouts. The Times suggests dividend and bonus payouts could prompt a public backlash and will be carefully scrutinised by politicians.

Small firms at risk of high indebtedness

The number of heavily indebted small businesses rose considerably over the course of the pandemic, the Bank of England has warned. Debt taken on by SMEs rose by a quarter, with many companies which had not previously borrowed going into the red for the first time. This compares to a 2% rise in debt for larger companies. A third of small businesses now have a high level of debt compared with 14% before COVID-19, according to a special report from the Bank’s Financial Policy Committee. High debt firms are defined as businesses whose debts are ten times greater than their cash balances. Although the borrowing has been cheap, there could be pockets of difficulty in sectors hit hardest by the pandemic, such as leisure and hospitality.

British bank customers most at risk of fraud

Figures from HSBC show bank customers in the UK are at higher risk of being targeted by fraudsters than people elsewhere in the world. Despite the bank doing less than 20% of its business is in this country, more than 80% of fraud losses suffered by personal customers at the international lender are in the UK. Data from the Financial Conduct Authority last week showed banks and other regulated firms were employing 17,403 staff in the UK alone to prevent financial crime, costing them £1.1bn every year.

HSBC Bank Pension Scheme commits to net zero by 2050

The HSBC Bank (UK) Pension Scheme has committed to achieving net-zero greenhouse gas emissions across its £36bn of defined benefit (DB) and open defined contribution (DC) assets by 2050. The scheme has also committed to halving its carbon emissions by 2030 for its equity and corporate bond mandates, and to enhancing its engagement and stewardship efforts through its asset managers.

Delay to Monument start

Monument Bank – a new digital bank for the wealthy – has delayed its launch until the end of this month or perhaps the beginning of next as it waits to exit the Bank of England’s mobilisation process. John Saunders, Monument's chief commercial officer, said: "Monument continues to have an active dialogue with the regulators regarding our exit from mobilisation."

Lloyds banker tipped for top Nationwide role

The boss of Lloyds' personal banking division, Vim Maru, has been tipped by industry insiders as the next chief executive of Nationwide. The leading internal candidates are Sara Bennison, the building society's chief product officer, and Paul Riseborough, head of  Nationwide's 'Hassle Free Money' division.

PRIVATE EQUITY

Bank issues warning over debt-fuelled takeovers

The Bank of England’s latest Financial Stability report points to increased risk within leveraged loan markets, with banks loosening conditions as demand grows – a result of private equity firms snapping up undervalued British companies. The Bank’s report said: “Risks in leveraged loan markets globally continue to build. These risks can affect UK financial stability through the direct impact on banks and the indirect impact of losses spreading through other parts of the global financial system.” However, the Bank said that the UK's core banking system was “resilient” and could handle a severe downturn.

UK Burger King primed for IPO

Bridgepoint, the private equity owner of Burger King’s UK business, has been speaking to bankers from Investec and Numis about a possible £600m float of the fast food chain after sales rose to £117m last year, up from £101m a year earlier. Bridgepoint is also considering selling Burger King UK in an auction, according to reports.

INTERNATIONAL

VTB Bank ordered to fix anti-money laundering measures

BaFin said it had appointed a special representative at the Frankfurt subsidiary of Russian state-owned VTB Bank to assess whether it is taking appropriate internal measures to prevent money laundering and terrorist financing.

Big banks resist most direct road map to net zero emissions

The FT reports that many of the banks signed up to Mark Carney’s climate initiative have rejected a plea to end the financing of all new oil, gas and coal exploration projects this year, preferring less explicit targets from the IPCC.

SEC throws sop to US investors with bitcoin ‘lite’ equity ETFs

The Securities and Exchange Commission approved a third crypto equity ETF last week, despite considerable concern within the regulator regarding the infrastructure underpinning the crypto market.

Wall Street banks go into earnings season under a cloud of rising costs

Analysts expect US banks to report lower revenues and increased costs this week, with fees from wealth management and dealmaking propping up earnings.

AVIATION

Virgin Atlantic hunts new chairman ahead of IPO

Virgin Atlantic is working with headhunters at Korn Ferry on a search for new directors as it prepares to float for the first time since it launched in 1984. Sir Richard Branson's flagship company is also looking for a replacement for chairman Peter Norris who has been in post for nearly a decade. The appointments are efforts to ensure that a robust corporate governance framework is in place if it does pursue an IPO in London.

Travel bookings rise sharply

A sharp rise in bookings have been reported by airlines and travel companies after the Government eased restrictions on international travel on Thursday, albeit from a low base. Separately, the Sunday Telegraph reports that the airline industry in warning of a pilot shortage after thousands retired or switched careers during the pandemic. Ministers fear a shortfall in pilot numbers could hamper a return to pre-pandemic flight numbers.

FINANCIAL SERVICES

Lloyds Banking Group set to take on HL

Lloyds Banking Group is plotting to take on Hargreaves Lansdown with a £100bn personal pensions and investment arm. Lloyds’ wealth and insurance boss Antonio Lorenzo said the bank wants to build its own version of the Hargreaves platform, which lets investors buy funds and shares inside Isas or self-invested personal pensions. He explained: “We have only around 3% of the direct-to-consumer pensions and investments market. Every year, more than £10bn is moved from Lloyds to personal pension providers. Our ambition is that in three to five years, we want to grow to more than 10%.”

British insurance execs prepare £200m London-listed SPAC

A special acquisitions vehicle set up by insurance executives Andy Rear and Will Allen has secured £50m of provisional funding from investors including Qatar Insurance Company and Toscafund. Financials Acquisition Corp (FINSAC), the pair's SPAC, had hired Barclays, HSBC, Numis and The Growth Stage to work on the remainder of an initial £200m capital-raising. The SPAC was likely to target fast-growing companies in areas such as insurtech if the listing proceeds, insiders said.

FCA to market London's financial services sector abroad

The Treasury is planning to transform the role of the Financial Conduct Authority and the Prudential Regulation Authority to help promote the City’s global competitiveness. A Treasury spokesperson said: “We are working closely with the FCA and PRA to ensure the UK remains an open, green, and technologically advanced financial services sector, based on high regulatory standards. We are considering the responses to our consultation and will publish a second consultation in the Autumn.”

Thomson to chair Zip

Metro Bank co-founder Anthony Thomson, who also set up Atom Bank and a digital lender in Australia, has joined the UK board of buy now, pay later firm Zip. “Buy now, pay later is a huge market globally,” Thomson said. Its chief appeal is that it is “a superior form of credit for consumers compared to credit cards”, he added.

HEALTHCARE

Elliott keeps pressure up on Walmsley

Elliott Investment Management's London chief Gordon Singer made a surprise appearance at a GlaxoSmithKline’s virtual investor conference last week, demanding to know what was holding back the drug company's share price. The theatrics were designed to put more pressure on CEO Emma Walmsley, whose leadership Elliot has questioned. Walmsley's lack of scientific experience has been repeatedly questioned as she prepares to lead New GSK - the biopharma arm that will remain after GSK’s consumer business is spun off.

LEISURE & HOSPITALITY

Investors oppose Rank bonuses

Shareholder advisers Glass Lewis and Institutional Shareholder Services have recommended voting against bonuses for Rank CEO John O’Reilly and the gambling group’s CFO Bill Floydd. A one-off award of shares equivalent to 100% of salary has been proposed for the pair. The Investment Association has also issued a “red top” warning against the award. Rank has not disclosed the performance targets attached to the award of shares, in a breach of traditional corporate governance standards.

Profits consistent for Hollywood Bowl

The UK’s largest ten-pin bowling entertainment provider, Hollywood Bowl, announced sales of £20.1m for August - a 50% increase compared to the same month two years ago. The company said that trading since May, when its lanes fully reopened, had been excellent and it has been profitable in every month since.

REAL ESTATE

Real estate firm buys 12 Hilton hotels

Henderson Park Capital has reportedly acquired 12 Hilton hotels as part of a £555m deal. The hotels comprise of some 2,400 rooms which span London, Edinburgh, Dublin, Bristol and Coventry. Henderson Park plans to invest an additional £40m in expanding and renovating hotels.

RETAIL

Rise in online retailing could cost food shops £250m

Research by Euler Hermes, the trade credit insurer, reveals that the UK's grocery sector could see its profits cut by almost £250m after the surge in online food shopping during the pandemic. Analysis suggests that for every percentage point that e-commerce increases its share of the country's grocery market, retailers stand to lose as much as £246m of profit in additional costs associated with online fulfilment. It revealed that e-commerce currently accounts for 12% of revenue generated by supermarkets, making them by far the most exposed operators in comparison to their European counterparts.

Hedge fund makes £20m betting against Hut Group

PSquared Asset Management has made a £20m profit in just over a month from betting against The Hut Group. The Swiss-based hedge fund took a 1.01% short in THG at the end of August when the company’s shares were trading at 617½p. Since then the share price has fallen by a quarter with a third of its market value wiped off in only three weeks.

SPORT

US family investment firm among Derby suitors

Carlisle Capital is in talks to buy Derby County. The American family investment firm is among a pack of suitors in talks with the football club’s administrators. The Mail reports that talks have also opened with HMRC over reducing Derby County 's tax debt.

ECONOMY

BoE rate-setter warns of rise in interest rates

Bank of England Monetary Policy Committee member Michael Saunders has said markets were right to price in a rise in interest rates this year as the Consumer Prices Index heads above 4%. Mr Saunders pointed to labour shortages as the main driver for inflation stating that the labour market appeared tight across many sectors, pushing up pay growth. His comments come as economists warn that rising household costs through tax hikes and higher bills will curb consumer spending, slowing down the economic recovery. The Sunday Telegraph points out that rising interest rates will be a headache for Chancellor Rishi Sunak and lead to higher interest on the Government debt built up over the course of the pandemic.

BoE warns of “sharp correction” in stock markets

The Bank of England has warned of a sharp correction in global stock markets if investors take fright at rising inflation and poor growth prospects – known as stagflation. This risks sparking a cost of living crisis and destroying the value of assets, forcing central banks to combat the increases by raising interest rates. A report by the Bank's Financial Policy Committee (FPC) suggested record high share prices reflected signs of higher risk-taking as investors searched for yield in a low interest rate environment. It added: “Asset valuations could correct sharply if, for example, market participants re‐evaluate the prospects for growth, inflation or interest rates.”

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