BANKING
UK banks set to be hit by tax scandal
UK-based banks and financial services workers are expected to be drawn into Europe's biggest ever tax scandal, with bankers, brokers and hedge fund managers based in the City of London among up to 2,000 suspects. The cum-ex scandal involves alleged dividend tax fraud and banks under investigation include Britain's Barclays, US-based Bank of America Merrill Lynch and Morgan Stanley, France's BNP, and Japan's Nomura, with law firms and auditors also potentially implicated. While several convictions have already been secured in German courts, Danish authorities this week won the right to pursue a £1.4bn alleged cum-ex fraud in London after the Supreme Court ruled it could be heard in England. Prateek Swaika, a partner at law firm Boies Schiller Flexner, said this ruling “is likely to open the floodgates to claims by other European regulators.” Cum-ex is a 'double-dipping' trading strategy which exploited a loophole in how dividend tax was collected, with shares borrowed just before a company was scheduled to pay dividends, enabling more than one investor to claim bogus tax refunds.
Banks to face broader BoE stress tests
The Bank of England will stress test some of the UK’s largest banks, insurance companies and pension funds to see how well they could cope with a repeat of the market chaos seen in the aftermath of 2022’s controversial mini-Budget. Around 50 institutions, including hedge funds, insurers and asset managers, will be asked to outline how they would respond to a series of simulated shocks to the economy. These will include a short, sharp shock, rather than a longer-term recession, with the Bank, Financial Conduct Authority and The Pensions Regulator working to deliver a “severe, but plausible” stress test that is “faster, wider ranging, and more persistent than those seen in recent periods of market instability.” The tests will look to gauge how institutions would react and the impact their reactions might have on the market but not assess the resilience of individual firms.
Banks failing customers on rates despite FCA crackdown
Analysis shows that big banks are failing to offer competitive savings rates on easy access accounts, despite the City watchdog cracking down on lenders neglecting to pass on Bank of England base rate increases to customers. Analysis from MoneyFacts places Barclays, HSBC, Lloyds Bank, NatWest, and Santander’s flexible easy access accounts in the bottom quartiles. James Hyde of Moneyfacts said big banks “have on the whole failed to make their easy access rates more competitive relative to the rest of the market,” even with the Financial Conduct Authority’s consumer duty challenging banks to price their portfolios competitively.
Farage to launch legal battle over NatWest debanking
Former UKIP leader Nigel Farage is set to take legal action against NatWest over the debanking scandal that saw his Coutts account closed. He is instructing lawyers to pursue the matter, with the aim of turning the case into a class action. The prominent Brexiteer said: “For all their lies and deceptions towards me, and their illegitimate debanking of tens of thousands of innocent people, NatWest and its former CEO, Dame Alison Rose, need to be held to account." Mr Farage, who has described a NatWest-commissioned report into the matter as a “whitewash," has called for the Financial Conduct Authority to pursue further action against the bank.
Metro Bank on financial crime watchlist
Metro Bank has revealed that it is on the Financial Conduct Authority's (FCA) "watchlist" for financial crime compliance. The FCA is looking at the management of financial crime within the bank's existing customers as well as concerns over the effectiveness of financial controls over the bank's online account provisions. Metro Bank disclosed this information in a prospectus urging shareholders to support a £935bn rescue deal. Being on the watchlist does not have financial implications for the bank but it must disclose regulatory matters that may affect its performance.
UK banks warned over treatment of fraud victims
The Financial Conduct Authority has warned banks and building societies to improve their treatment of victims of fraud or risk breaching new rules on consumer harm in retail financial markets.
INTERNATIONAL
Italian banks see record drop in loans to businesses
Loans by Italian banks to businesses fell further in September, Bank of Italy data shows. Bank credit to firms fell 6.7% year-on-year, the biggest decline on record. The string of interest rate hikes by the European Central Bank has made it much more expensive for firms to borrow. Residents' deposits at Italian banks continued to fall, decreasing 3.5% annually. Banks further increased bond issuance to make up for lower customer funding, with bond sales up 18.4% year-on-year in September.
ANZ sees14% jump in profits
Australia's third-largest lender, ANZ Group Holdings, reported a 14% jump in full-year cash profit, having posted growth in both lending and deposits. The company posted a cash profit of A$7.41bn for the year ended September 30, compared with A$6.50bn a year earlier.
CONSTRUCTION
Redrow warns of lower profits as autumn sales disappoint
Redrow has warned that its profit this year will be at the lower end of its forecast range due to weaker-than-expected autumn sales. The company has taken reservations for houses worth £384m, which is 25% below the same period last year. Redrow still expects a turnover between £1.65bn and £1.7bn for the current financial year, but pre-tax profit will be at the lower end of the £180m to £200m range. The company's order book has dropped by more than a third to £864m.
FINANCIAL SERVICES
Klarna questions BNPL warning
Klarna has hit back at a report from financial services firm Moody’s which suggested buy now, pay later (BNPL) firms may see credit losses increase, saying Moody’s characterisation of the riskiness of BNPL debt seems to “lack nuance.” Klarna highlighted that BNPL loans “tend to be very low value and extremely short duration. That makes it much less risky than a higher value, longer term debt, even if that debt is secured on some form of collateral.” Arguing that there is “a lot less that can happen in the 60 days between taking out a BNPL loan and fully paying it off,” Klarna said this means BNPL providers “can be much more responsive to changing market conditions.” “When Klarna changes our underwriting policy, 50% of the balance sheet is underwritten on the new model within two months,” the lender added, noting: “That is not possible with much longer-duration loans.”
LSE boss: IPO market will bounce back
David Schwimmer, chief executive of the London Stock Exchange Group, expects London’s sluggish IPO market to bounce back as the rate hiking cycle starts to ease and uncertainty over inflation settles. The amount raised via IPOs fell by 36% in Q3, totalling £565.5m. In the first three quarters of 2023, 23 companies listed in the UK, raising £953m. In 2022, there were 34 IPOs, with these raising £1.16bn. Mr Schwimmer insists that IPOs “will come back ... when the environment stabilises and improves,” saying: “Markets are very adaptable, if this is the new norm then markets will adjust to that and people will raise capital in that new norm.”
FCA in contact with authorities over ICBC ransomware attack
The Financial Conduct Authority says it is aware of the ransomware attack on Chinese bank ICBC and is communicating with relevant US and UK authorities "to identify any impacts to UK financial services." This comes after the American arm of China's biggest bank was targeted. In the US, the Securities and Exchange Commission said it is focused on "maintaining fair and orderly markets."
REAL ESTATE
Housing market exceeds expectations
Rightmove analysis suggests that the housing market will outperform forecasts this year, saying 2023 so far “has been better than many predicted following the turbulent end to 2022.” The average asking price has only declined 3% from the “unsustainably frothy heights” of a peak seen in May, while the number of agreed sales is down just 10% on 2019. Rightmove’s data also shows that there are now just 1% fewer listings than this time four years ago. Tim Bannister, head of data at Rightmove, said: “While there have been many twists and turns, and there are still seven weeks left of the year, the data indicates that there has been more to be positive about in 2023 than many thought there would be this time last year.”
RETAIL
Retailers face £400m increase in business rates
Britain's largest retailers are set to face a £400m increase in business rates next year, despite warnings that this could lead to job losses and higher prices. Chancellor Jeremy Hunt has decided against freezing rates for larger retailers, with bills potentially rising by 6.7% in the spring, but is said to be considering calls to freeze rates for smaller companies. Larger firms have warned the Chancellor against raising the business rates "multiplier" in September, saying it would amount to a £400m hit.
ECONOMY
Economy flat in Q3 but avoids recession
Office for National Statistics data shows that the economy failed to grow in Q3. While GDP was up 0.2% in September, growth for August was revised down to 0.1% from 0.2%. With GDP flatlining in Q3, it means the UK has avoided a recession in 2023, with this defined as two consecutive quarters of negative GDP. Yael Selfin, chief economist at KPMG UK, commented: “Economic activity is continuing to slow as high interest rates are weighing on consumer sentiment and disposable incomes.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The economy narrowly avoided contracting in Q3, and we continue to think that it can maintain this resilient performance in Q4” "We continue to think that the chances of a recession look low," he added. Chancellor Jeremy Hunt said the economy “has been much stronger than people thought," adding: “Most people thought it was going to contract this year. It's actually grown, and that gives us an excellent foundation for the future." The Chancellor also warned that inflation is the “single greatest barrier” to growth, adding that the “best way to sustainably grow our economy right now is to stick to our plan and knock inflation back.”
OTHER
Bank of Mum and Dad dishes out £98bn in five years
Research from SunLife shows that the Bank of Mum and Dad has handed out £98bn over the past five years, with parents over the age of 50 helping their children to get onto the property ladder, pay bills and settle debts. The study, which used data from SunLife customers and the Office for National Statistics, found that around £35bn of the total handed out has gone toward property purchases. SunLife chief executive Mark Screeton said: “Financially supporting family is a priority for many over-50s. Our research shows that many are giving significant cash gifts for a range of different reasons, including to ease the burden of debts and the rising cost of living.”
Leading firms hand investors record dividends
FTSE 100 firms have paid investors a record £139bn in dividends and share buyback programmes this year, analysis from AJ Bell shows. This already exceeds the £138bn handed to investors in 2022. So far this year, £84bn has been paid in dividends, up from £77bn in 2022, while £55bn has been paid out in buybacks compared with last year’s £58bn. The analysis places HSBC among those offering the biggest payouts.