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Daily News Roundup: Monday, 13th March 2023

Posted: 13th March 2023

BANKING

HSBC agrees deal for Silicon Valley Bank UK

HSBC has announced that it is buying the UK arm of Silicon Valley Bank for £1, providing a lifeline for tech firms who had feared losing access to their deposits. The Treasury said the deal with HSBC involved no taxpayer money and the Bank of England said deposits were secure. Noel Quinn, HSBC Group chief executive, said UK customers of SVB could "continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC". The deal comes after SVB - which specialised in lending to technology companies - collapsed in the US on Friday in the largest failure of a US bank since the financial crisis in 2008. The Chancellor Jeremy Hunt tweeted in reaction to the deal, saying: "I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise."

Ministers urged to shield banks from impact of EU tax

Ministers have been urged to safeguard the City of London amid warnings that taxes on British banks will force lenders to push business overseas. With an EU levy imposed on European lenders expected to fall next year, there will be a disparity in the tax regimes for banks in the EU and Britain. This is likely to make the UK less attractive to banks wishing to invest, financial services firms have warned. In Britain, banks pay a corporate tax surcharge as well as a levy on their UK balance sheets. David Postings, the head of industry body UK Finance, says the levy and surcharge “do not encourage growth or investment,” adding: “They have served their purpose — make the UK less competitive than other global financial centres — and the Government should set out a road map for their removal.”

UK prepares cash lifeline for tech companies hit by Silicon Valley Bank collapse

The Financial Conduct Authority has spoken to banks about taking part a scheme providing guarantees for those offering loans to companies with money locked in Silicon Valley Bank accounts.

Government seeks British Business Bank chair

The Government has launched its search for a new head of its economic development bank, with ministers aiming to appoint Lord Smith of Kelvin’s successor as chairman of the British Business Bank (BBB) in the next three months. Lord Smith, who was appointed as BBB chairman in 2017, will step down when his term ends in June. The Government last year named Louis Taylor, the chief executive of UK Export Finance, as the BBB's new CEO.

Lenders ease affordability tests

Banks are getting less tough with their affordability tests, making it easier for borrowers to take out larger mortgages. TSB has cut the stress test rates from 8% to 6.5% for those remortgaging but not borrowing extra money and 7.5% for other borrowers. Skipton Building Society and Birmingham Midshires also cut the rates at which they stress-test landlords last week.

INTERNATIONAL

FDIC establishes bridge bank after closure of Signature Bank

Signature Bank has been closed by state regulators, just two days after Silicon Valley Bank collapsed. The US Federal Deposit Insurance Corporation has established a bridge bank to handle customer accounts at Signature Bank. It said the government-run institution will ensure accounts operate uninterrupted while the regulator looks to find a buyer for the shuttered bank's assets. The US Treasury Department and other bank regulators have said "no losses will be borne by the taxpayer."

Swiss regulator: 'no grounds for proceedings' against Credit Suisse

Swiss financial regulator FINMA has said it does not see sufficient grounds for supervisory proceedings against Credit Suisse after investigating statements on outflows made by its chairman - but has set expectations for future communication from the Swiss bank. FINMA had looked in to "possible violations of financial market law" at the Swiss bank after chairman Axel Lehmann said customer outflows had “completely flattened out” and “basically stopped” in December, despite outflows continuing throughout December and into January.

Regulator takes control of SVB's Canadian branch

Canada’s Office of the Superintendent of Financial Institutions is taking temporary control of Silicon Valley Bank's unit in the country. The regulator is seeking to gain permanent control of the Canadian branch's assets. It is also asking Canada’s attorney general to petition for a winding-up order of operations.

AUTOMOTIVE

Chinese car firm rules out UK due to Brexit

China’s BYD, the world’s largest seller of electric and hybrid cars, will not consider building its first European car factory in the UK because of the impact of Brexit. Michael Shu, BYD’s European president, said: “As an investor we want a country to be stable,” adding: “To open a factory is a decision for decades. Without Brexit, maybe. But after Brexit, we don’t understand what happened.” China’s top-selling electric car maker has shortlisted locations in Germany, France, Spain, Poland and Hungary, with Mr Shu saying: “Even on the long list we didn’t have the UK.”

Pendragon told to shake up the board

Activist investor Palliser Capital has demanded a boardroom shake up at car dealer Pendragon, saying the board become distracted by a failed £400m takeover bid by Anders Hedin, its biggest shareholder. Palliser Capital, which holds a stake of around 4% in Pendragon, wants to insert three directors on the car dealer’s board. It also wants Pendragon to refocus on driving profitability by expanding its higher margin car servicing operation.

CONSTRUCTION

Berkeley sales fall as rates rise

Housebuilder Berkeley Group says it will take a "cautious" approach to releasing new phases of developments to the market amid continued "volatility" in the UK property market. The construction firm said sales since the end of September 2022 after the "mini-Budget" were around 25% lower than a strong first five months of its financial year. In a trading update, the FTSE 100 firm said it expects to deliver a pre-tax profit of around £600m for the year to the end of April, in-line with prior guidance.

FINANCIAL SERVICES

Regulators need more scrutiny - Lord Bridges

Former minister Lord Bridges says there is a need for regulators to face “greater levels of scrutiny and accountability” as they receive more powers, post-Brexit. This comes as the Financial Services and Markets Bill passes through parliament, with financial regulators such as the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) having been given the power to replace existing EU laws. Lord Bridges says the creation of an Office for Financial Regulatory Accountability (OFRA) would improve scrutiny of regulators, noting that it would “examine and report on the performance of the FCA and the PRA.” He added that the OFRA will enable “scrutiny based on fact about how the regulators are performing their role,” but stressed that it would not be “a regulator of the regulators,” arguing that it would offer a “way of informing the debate about regulators’ performance with fact and opinion.” On concerns over the bill, Lord Tyrie has said it “confers huge new powers on the regulators, repatriated from the EU, without making any meaningful suggestions to make them more accountable when they exercise those powers,” while Lord Forsyth of Drumlean said the scale of powers transferred to UK regulators was “quite frightening” given the “lack of ability to actually see what they are doing.”

FCA told to quantify cost of greenwashing clampdown

The Commons Treasury Select Committee has asked the Financial Conduct Authority (FCA) to quantify the cost to investors of its clampdown on the marketing of green investment funds. This follows analysis by wealth manager SCM Direct which suggests the FCA action could cost investors more than £600m. It is suggested that swathes of investors will move their money out of green investments as the funds will no longer be allowed to be labelled as such. In a letter to FCA boss Nikhil Rathi, committee chair Harriett Baldwin raised concerns that such transfer costs had not been included in the regulator’s proposals. The committee has also sought assurances that the City watchdog will seek redress for investors who bought misleading green products. The FCA has also been asked to detail the enforcement work it will undertake to identify investment companies guilty of greenwashing.

MANUFACTURING

Badenoch: Steel needed for economic resilience

Business and Trade Secretary Kemi Badenoch says the UK needs to find a way to support the steel industry as it is vital to the long-term strength of the economy. She said: “The reality is that steel is very, very challenging but we do need steel, certainly from an economic resilience perspective,” adding: “We can't just decide that we're going to rely on China. But how to make sure that that is value for money, not just for the businesses and communities but for taxpayers is a very complex question.”

REAL ESTATE

Mortgage costs to rise as BoE ‘messed up’ on inflation

Mortgage costs are likely to rise due to the Bank of England’s efforts to address inflation and its interest rate rises, according to Bank of America analyst Alastair Ryan. He pointed to a recent increase in swap rates, which are used to price fixed-rate mortgages, saying it has seen the Bank's credibility "diminished" among investors. Mr Ryan says investors are starting to question the Bank's message that inflation will fall sharply this year and drop back towards its 2% target, warning that interest rates "may well need to go meaningfully higher, because the Bank of England have messed up inflation profoundly."

Investors pulled £30m from UK property funds in February

Investors pulled £962m pounds from UK-focused equity funds in February, the third-largest monthly outflow on record even as the FTSE 100 hit a record high, funds network Calastone said. Property funds' net outflows fell to £30m pounds, Calastone said, £18m pounds lower than in January, driven by a reduction in sell orders. Still, property funds have seen seven consecutive months of net selling, as property investments are at risk from higher borrowing costs and lower demand from tenants, Calastone said. Returns on UK property saw their biggest drop since 2008 in the last quarter of 2022, data from MSCI showed in February.

ECONOMY

Economy rebounds with January growth

Figures from the Office for National Statistics (ONS) show that the economy expanded by 0.3% in January, with the rebound following a 0.5% contraction in December. While the data shows month-on-month growth, the economy stagnated in the November to January period compared with the previous three months. The report also shows that January saw a fall in output in both the manufacturing and construction sectors. Darren Morgan, the ONS’s director of economic statistics, said that while the economy “partially bounced back from the large fall seen in December … Across the last three months as a whole and, indeed over the last 12 months, the economy has, though, showed zero growth.” Prime Minister Rishi Sunak said the economy "has proved more resilient than many expected, but there is a long way to go." Ruth Gregory, deputy chief UK economist at Capital Economics, commented: “We doubt January's strength will last and our hunch is that there will still be a recession.” However, economists including the National Institute of Economic and Social Research think-tank and investment banks Goldman Sachs and JPMorgan have predicted that the UK will avoid a downturn.

OTHER

Hunt urged to unlock funds to drive growth

A City taskforce has urged Jeremy Hunt to unlock hundreds of billions of pounds' worth of funds to back UK growth. The Capital Markets Industry Taskforce (CMIT) has called on the Chancellor to help encourage more of the £4.6trn managed by pension schemes and insurers to be invested in businesses. In a letter to Mr Hunt, the taskforce has flagged an “alarming” collapse in the amount of risk capital being invested in UK assets by UK pension schemes and insurers. It notes that 39% of all shares listed on the London Stock Exchange were owned by such institutions in 2000, but this had fallen to 4% by 2020. The letter, which is signed by Peter Harrison, chief executive of asset manager Schroders, and Andy Briggs, CEO of pensions firm Phoenix, says the decline means “poorer returns for UK pensioners and, importantly, that UK pensions are not being utilised to drive the growth of the UK economy.”

Wall Street optimistic over luring UK firms for listings

The New York Stock Exchange is "very optimistic" that it can attract more British companies to list in the United States over the coming years. Cassandra Seier, head of international capital markets at the New York Stock Exchange, said it "feels like there is some tailwind" behind British companies looking at listings in the US, highlighting the depth of liquidity in the US market and the risk appetite of its investors. She commented: “We have a very robust pipeline of companies coming from all over the world, including the UK. The United Kingdom is the third largest country for us from an international standpoint.”

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