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Daily News Roundup: Monday, 15th August 2022

Posted: 15th August 2022


Banks face punishment over treatment of scam victims

The Financial Conduct Authority (FCA) is examining whether vulnerable fraud victims are being wrongly denied refunds and has warned of “consequences” for banks that have failed to treat victims fairly. Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Where the [customer’s] vulnerability is of a kind that affects the person’s ability to make a decision in their own interests they should be reimbursed. If the banks are getting it wrong more often than they are getting it right, there will be consequences with the FCA.” Three in four fraud victims are wrongly denied refunds, according to the Financial Ombudsman Service. Industry figures show that fewer than one in two fraud victims receive compensation from their bank, while just £271m of the £583m lost to scams last year was returned. Consumer finance campaigner Mark Taber described the treatment of the victims by their banks as “inhumane,” adding that “scammers target vulnerable people with savings and they keep going until they have everything.” “Banks have a duty to stop this happening, but they are failing to do it,” he warned. Mel Stride, chairman of the Commons Treasury Committee, says it is the banks’ responsibility to “protect their customers’ savings.” He added: “The Government and the banking sector must be on the front foot in protecting people from financial loss through scams, particularly at a time of such economic uncertainty.” A spokesman for UK Finance said banks “worked hard” to identify and protect vulnerable customers from scams and fraud but admitted that “more needed to be done” to improve reimbursement of losses.

Gap between savings and mortgage rates widens

The gap between average savings rates and mortgage rates is at its biggest since 2007 as banks fail to pass on rising interest rates. The gap between the average standard variable mortgage rate and the average easy-access savings rate has widened from 4.21% in December to 4.47%, after the Bank of England increased the Bank Rate by half a percentage point. Andrew Bailey, the Bank's governor, said: "The evidence suggests that the pass through has been faster to borrowers than it has been to savers so far". The average standard variable mortgage rate has risen from 4.4% to 5.17% since December, according to Moneyfacts. Over the same period the average easy-access savings rate has only crawled up from 0.2% to 0.7%.

Co-op broadening money services

The Co-op is planning to install more OneBanks in its convenience stores, which will allow customers to deposit and withdraw notes and coins and manage payments for utilities and other bills. It comes as the pandemic has accelerated a shift away from cash as more retailers encouraged the use of contactless payment, with figures from Which? revealing that 4,685 bank branches have shut their doors since 2015 and a further 226 are scheduled to close by the end of the year.

Brits across EU to see accounts close

British banks including Barclays, Halifax and Lloyd’s have told UK citizens living in the EU that their EU-based bank accounts will soon be shut. They have been told they can only keep their UK bank accounts if their permanent address is in the UK. Following the end of the Brexit transition period, banks that wish to continue operating legally across the bloc require special legal permissions for each EU market individually. Many have come to the conclusion that this is too costly and requires too much paperwork for a relatively modest amount of customers.


Private equity pumps £42bn into sport

Private equity firms pumped £42bn into sports investments globally in 2021, according to figures compiled by Pitchbook, with £18.1bn of this invested in Europe alone. High-profile deals involving private equity include CVC Capital Partners' investments in Premiership Rugby and rugby union tournament the Six Nations, and Silverlake's purchase of a minority stake in the New Zealand All Blacks.


Jobs fear for the City as recession looms

Simon Foy in the Sunday Telegraph says many City bankers “are on edge as the spectre of a jobs cull looms large” following one of its quietest dealmaking periods in years. Data shows that in April and June, only 305 listings took place globally. This marks a 54% year-on-year decline, while the $40bn raised is 65% down on the same period last year. In London, there were just 13 IPOs in the first six months of the year, a fall of 71% on a year earlier, with the proceeds of just under $150m representing a 99% decline. On the back of these numbers, City firms are said to be weighing up job cuts. Goldman Sachs has warned that it could axe underperforming employees and plans to slow hiring, while Credit Suisse is said to be considering plans to reduce thousands of roles globally. The London office of German lender Berenberg recently let go about one in 10 staff in its investment banking arm, while broker Numis has also cut reduced its headcount in London in recent weeks. Douglas Flint, chairman asset manager Abrdn, says he expects the investment management industry to face some cuts in the next six to 12 months.

Debt fears spark calls for tighter credit reference regulation

Credit reference agencies are making millions of pounds by promoting credit cards and loans to borrowers worried about their finances, research by the Sunday Times’ George Nixon has found. He says the firms, which collect data from banks, energy companies and other business that people have a credit agreement with, “bombarded” consumers with adverts telling them they could boost their creditworthiness and ease financial pressures by taking on debt, landing commission for every product taken out. James Daley from the consumer group Fairer Finance believes credit advertising should face far tighter regulation, saying: “Firms should be allowed to make you aware of products, but any attempt to entice you to borrow should be banned.” The Financial Conduct Authority has been looking into the credit check market amid concerns that it does not work well for consumers and is expected to report its findings next month.

Insurance targets seven-year rule on IHT

The Telegraph reports that there is growing interest in gift insurance policies that pay out a lump sum to meet the inheritance tax due if person dies within the seven-year window for reducing IHT by gifting money during their lifetime. It notes that while using "whole-of-life" policies to offset death duties is relatively well known, gift insurance is less common, with Aegon and LV the only insurers to currently offer the policy.


Services sector remains robust

The UK’s professional services sector has seen continued growth in turnover, despite several economic headwinds. Office for National Statistics data shows turnover in the accountancy sector increased 3.7% from £3.41bn in May to £3.54bn in June, while the legal sector saw turnover increase by 10%, with the legal services industry’s revenues up from £3.23bn to £3.59bn. The overall services sector, which accounts for 78% of the UK’s total economic output and provides 82% of UK jobs, saw turnovers increase 5.7% to £240bn.


House prices set to dip, says CEBR

House price falls are imminent amid soaring mortgage rates and increased pressure on household budgets, according to the Centre for Economics and Business Research. The analysis suggests there will be a downturn in 2023, with prices set to fall by 4% next year. Meanwhile, Capital Economics has forecast a two-year property market downturn, with price falls of between 5% and 10% by the end of 2024. Andrew Wishart of Capital Economics comments: “The historical record shows that increases in interest rates of the scale that we are seeing now are always a precursor of house price falls.”

Homeowners take out longer loans to battle rising energy bills

The number of buyers searching for a mortgage with a term of 40 years or above has doubled in the past year to more than 10,000 a week, according to analysis by mortgage data firm Twenty7Tec. Homeowners and first-time buyers have been left with little choice amid a sharp rise in utility, food and fuel bills which has hampered their borrowing power. Rising energy prices have also spooked banks and building societies into tightening their affordability rules, mortgage brokers have warned. Imran Hussain of broker Harmony Financial Services said: “If borrowing capacity continues to reduce it could see some borrowers priced out of buying a home in the short term.”

Repossessions could double following mortgage rate hike

Home owners could be paying nearly £5,000 extra a year for mortgages as interest rates soar. That will double this year's projections for repossessions to 24,000 by 2024, according to Capital Economics' analysis of latest Bank of England figures. Housing experts think rates of between 5% and 7% are likely next year before falling again in 2024. That means a £200,000 repayment mortgage over 25 years costing £1,002 a month now would go up an extra £168 a month or £2,016 a year at 5% and £412 a month or £4,944 a year at 7%. That will increase the cost of loans on 850,000 properties with tracker mortgages, along with the 1.1m on variable rates. One in three of the 9m borrowers on fixed deals will see them ending within the next two years.


Hedge funds target Asos and Boohoo over CMA’s greenwashing probe

Leading hedge funds have targeted fast-fashion retailers Asos and Boohoo, betting on the impact of a greenwashing investigation by the Competition and Markets Authority. The competition watchdog is probing whether some of the firms’ sustainability claims are potentially misleading to consumers, with CMA chief executive Sarah Cardell saying it will pursue a claim in court if it finds evidence of wrongdoing. Since the announcement on July 29, short sellers including Marble Bar Asset Management, GLG, CapeView Capital and AHL Partners have boosted their bets that Boohoo and Asos's share prices will drop further. Danni Hewson, financial analyst at AJ Bell, said that if the firms are found to have misled consumers and are fined, the reputational damage would hit share prices.


Economy shrinks 0.1% in Q2

The UK economy shrank 0.1% in the second quarter, data from the Office for National Statistics (ONS) shows. The data also shows that the economy contracted by 0.6% in June. The decline over Q2 was partly attributed to the test and trace and vaccine programmes coming to an end, a fall in retail sales and the Queen's Platinum Jubilee bank holiday in June. ONS director of economic statistics Darren Morgan said: “With May’s growth revised down a little and June showing a notable fall, overall the economy shrank slightly in the second quarter.” Despite the contraction between April and June, the economy avoided recession because GDP grew by 0.8% in the first three months of this year. Reflecting on the data, Capital Economics said there is now a greater risk that the economy will shrink by 0.2% between July and September. However, Goldman Sachs predicts growth of 0.4% in Q3 and HSBC said it expects “a bounce back in July - the reversal of the bank holiday effect - to set the UK up for a positive Q3.”

UK trade deficit hits record high

The UK’s trade deficit - the value of exports minus the value of imports - hit a record £27.9bn in Q2, with this coming on the back of the steepest increase since 1997. Imports increased by £14.3bn to reach £206.6bn, while exports were up by £12.3bn to £178.6bn, according to the Office for National Statistics. Removing the effect of inflation, the total trade deficit, excluding precious metals, narrowed by £2.4bn to £22.6bn in the second quarter and came in at 4.5% of the UK’s GDP. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, described the trade data as grim, adding that it would worsen further over the coming months.

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