BANKING
Banking rules will avoid financial crisis repeat
Analysts say UK banks are better prepared to withstand a jump in home loan defaults amid a surge in mortgage rates, making a repeat of the financial crisis unlikely. Strict affordability rules implemented after 2008’s banking crash have strengthened lenders’ loan books, with Bank of England (BoE) stress tests and capital reserve requirements have shored up the balance sheets of banks such as Barclays, Lloyds and NatWest. The average ratio of capital to risky assets has increased from 4.5% to 14.3%, according to BoE data. Russ Mould, investment director at AJ Bell, said: “While it is tempting to look back to the great financial crisis, the comparisons between now and 2008 might reveal as many differences as there are similarities.” Sophie Lund-Yates, a senior equity analyst at Hargreaves Lansdown, said: “The majority of the UK’s banks are sitting on piles of excess capital.”
Trustees raise alarm over green bank
Trustees of Britain’s green investment bank have voiced concern over its operations, saying the Green Investment Group (GIG) has “lost ground to peers” in areas such as disclosure and risk. The Green Investment Bank, which was set up by the Government in 2012 to help drive investment into green energy, was sold to Australian bank Macquarie for £2.3bn in 2017. In their annual analysis, the trustees said the bank remained a “market leader in green investment” but warned: “We take the view that this position is increasingly at risk: other players have caught up and, in some assessment areas, overtaken GIG in market best practice.” They said the main areas where they fear GIG has lost ground to peers include disclosure, stakeholder engagement and risk.
New clients turned away by Barclays
Barclays is turning away applications for bank accounts from all but the smallest businesses due to the complexities of checks designed to prevent financial crime. According to the Times, the bank has had limited capacity for opening new business accounts for more than four months and is likely to continue to reject companies with more than one director until at least next month. Barclays is understood to have only limited opening capacity for companies requiring anything beyond very basic “bank mandates”. The Financial Conduct Authority is aware of the activity, but Barclays has indicated that the City regulator had not instigated it. It blamed a shortage of staff available to complete the due diligence work.
TSB could block bonus for ex-boss
TSB is set to block a bonus for Paul Pester, the former chief executive who presided over an IT meltdown in 2018 that saw customers locked out of their accounts for weeks after a systems upgrade. Although Mr Pester left with a £1.7m pay-off, an extra payment was deferred pending the outcome of an investigation by law firm Slaughter & May and a probe by the Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority. Both investigations delivered damning verdicts, with the FCA issuing a £49m fine. With the bank’s board set to decide what Mr Pester and other departed executives will receive, sources say there is concern that payouts could be seen as a “reward for failure.”
Accounts delay could hit Revolut’s bank licence bid
Fintech firm Revolut’s efforts to secure a UK banking licence may be hindered by its failure to file its latest annual accounts on time. Gary Greenwood, banking analyst at Shore Capital, said: “'You have to be very concerned about the prospects of any company that fails to file accounts on time. It certainly won't help their hopes of being granted a UK banking licence.” Revolut is close to finalising its financial accounts for the year ended December 2021, with its auditor set to sign off the long-overdue report at the end of January. Meanwhile, the Guardian reports that Revolut is to create a new division to determine whether staff are being “approachable” and “respectful”, as it tries to address criticism about an aggressive corporate culture.
INTERNATIONAL
US banks post Q4 earnings
JPMorgan Chase set aside $1.4bn in fresh reserves in case of loan defaults in Q4. The bank’s profits came in at $11bn, with this up 6% from a year ago. Revenues rose 18% to $34.5bn. Meanwhile, Bank of America’s profits came in at $6.9bn, up 2% from a year ago. The bank, which reported an 11% jump in revenues to $24.5bn, accounted for $403m in possible bad loans. Citigroup’s Q4 profits fell 21% to $2.5bn, while revenues climbed 6% to $18bn. Elsewhere, Wells Fargo reported a 50% drop in fourth-quarter earnings to $2.9bn, due largely to a $3.3bn hit related to regulatory problems. The bank last year agreed to pay $2bn to compensate customers and $1.7bn in civil fines under a Consumer Financial Protection Bureau settlement.
Credit Suisse set to cut investment banker jobs
Credit Suisse will put more than 10% of its European investment banking jobs under review as it looks to cut costs. In October, the bank outlined plans to cut 9,000 of its 52,000 workers over the next three years. Efforts to reduce costs will also see the bank cut back on bankers’ bonuses.
CONSTRUCTION
Taylor Wimpey to scale back land acquisitions
Housebuilder Taylor Wimpey will buy less new land and build fewer homes in 2023 as it seeks to cut £20m from costs. It completed 314 fewer new builds last year and has seen cancellation rates rise by 18% over the year, up from 14% in 2021. The company stood by profit forecasts of £921m for the full-year, but said sales "remain significantly below levels seen prior to the rise in mortgage rates in the third quarter of 2022" and that it expects overall volumes to reduce in 2023.
FINANCIAL SERVICES
BNPL to impact credit scores ahead of FCA regulation
Buy now, pay later (BNPL) payments are to impact credit scores for the first time. BNPL business Zilch, which has 3m users, is to start sharing data on customers' balances and repayments with credit rating agencies. The move could see people’s ability to borrow restricted if they fall behind on payments. This comes with BNPL firms set to face regulation from the Financial Conduct Authority (FCA). New rules from the City watchdog are expected to include a requirement to perform credit checks. In a 2021 review of the market, the FCA said companies would need to “properly consider affordability for consumers, particularly as they may not have visibility of missed payments with other providers.” MPs and campaigners have raised concerns that BNPL companies may be encouraging consumers to spend more than they can afford. An FCA spokesman said: “We have been consistently calling for a change to the law to bring buy-now-pay-later products under our regulation. As soon as Government and Parliament decides on the scope of that legislative change, we will immediately consult on the rules these firms need to follow.”
Buyers eye MJ Hudson divisions
Financial services group MJ Hudson, which has had its shares suspended amid apparent accounting irregularities, has received takeover approaches for parts of its business. Sources say that while there have been "several" approaches for divisions within the business, none had been for the entirety of the group. MJ Hudson announced in December that its shares were being suspended after being made aware of issues, including those in relation to “the reporting of historical trading of the business.” It also said finance director Peter Connell had been suspended.
Odey bosses set to share £19m in profits
Veteran hedge fund boss Crispin Odey and more than a dozen colleagues will share £19m in profits from his asset management fund. But the pot – for the year to April 5, 2022 – is less than half the £40m enjoyed the previous year. Odey Asset Management did not say what had caused the slump.
Time for mutuals to rise again, says LV boss
David Hynam, who became chief executive of LV in September, is promising to lead the 180-year-old mutual into “a new era”. In an interview with the Mail on Sunday, Hynam presents himself as a champion of mutuality. He adds: “I would like a new age of mutuality. It has never been more relevant than it is today because if we are not reaching out to one another at the moment, then when will we?”
HEALTHCARE
Pharma and biotech seek cure for industry deal slump
Refinitiv data shows that the value of dealmaking in the pharma and biotech sectors fell 38% year-on-year to $199bn in 2022, with last year’s total marking a five-year low.
REAL ESTATE
Rising mortgage costs hit first-timers
Nationwide has revealed that rising mortgage rates are squeezing first-time buyers. The lender found the average mortgage payment for a first-time buyer with a 20% deposit and a mortgage rate of 5.5% is now equivalent to 39% of take-home pay. This is the highest level since the 46% recorded during the financial crisis in 2007. Andrew Harvey, senior economist at Nationwide, notes that between the start of the pandemic and the end of 2022, house prices increased by 19%, while incomes rose by “a much more modest” 9%. He also highlighted that a 20% deposit on a typical first-time buyer home is now equivalent to 112% of the pre-tax income of a typical full-time employee, adding that this is “only modestly below” the all-time high of 117%.
RETAIL
Matalan founder loses control in rescue deal
Matalan founder John Hargreaves has lost control of the retailer after a group of the company’s lenders agreed a deal that wipes out his equity. The firm is set to announce that lenders Invesco, Man GLG, Tresidor and Napier Park have agreed a debt for equity swap. This comes after a sale process did not produce any bids the lenders were willing to accept. In exchange for taking ownership, the lenders will reduce their outstanding debts by £150m to £200m - and commit to providing £100m of fresh equity.
ECONOMY
Economy grows by 0.1% in November
The UK economy unexpectedly grew in November, with Office for National Statistics (ONS) data showing growth of 0.1%. While the figure shows a slowdown in growth after a 0.5% increase in October, analysts had predicted that the economy would shrink by 0.3% in November. The expansion was driven by the services industry, which saw a boost from football fans heading to pubs and bars to watch the World Cup. Economists have suggested that November’s GDP reading makes it less clear whether the UK will have entered a recession at the end of last year. Darren Morgan, director of economic statistics at the ONS, said the economy would have to shrink by 0.6% in December to send the UK into a recession – which is defined as two consecutive quarters of shrinking economic output. Pantheon Macroeconomics said whether the UK is already in recession or not is "hanging in the balance." Kitty Ussher, chief economist at the Institute of Directors, said: “Given we know the economy also grew in October ... it is no longer certain that the economy will meet the technical definition of a recession when the final data for 2022 is in.”
Inflation has probably peaked, say analysts
Experts say inflation has probably peaked and price rises should slow through 2023. With December's Consumer Price Index (CPI) figures set to be released this week, some forecasts suggest the rate could come in at just over 10%, having hit a peak of 11.1% in October. Analysts say this could encourage the Bank of England's Monetary Policy Committee (MPC) to temper further increases in the base rate, which currently sits at 3.5%. Philip Shaw of Investec says: “A continued falling trend should help to convince the MPC that it can begin to move the Bank rate up in smaller increments than December's half-percentage point.” Deutsche Bank's Sanjay Raja suggests inflation “should now be on a gradual but bumpy trajectory down to target, which we think will take at least 18 months,” adding: “The recent fall in gas prices should help get us there a little quicker if market pricing is sustained, or falls further, over the coming quarters.”
OTHER
FTSE 100 moves toward record high
The FTSE 100 is heading towards a record high, having closed above 7800 for only the third time in its history. The index rose 0.6%, or 50.03 points, to 7844.07 on Friday. This is not far off the record high of 7877 recorded in May 2018. Meanwhile, the FTSE 250 added 0.6% on Friday, with the 111.71 points increase taking it to 19952.84.