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Daily News Roundup: Monday, 16th May 2022

Posted: 16th May 2022

BANKING

High street banks look to BNPL

The Telegraph looks at how high street banks are beginning to offer buy now, pay later (BNPL) products, with Barclays – in partnership with Amazon – and HSBC having experimented with BNPL options within their existing product lines and NatWest and Virgin Money planning to expand their offerings later this year. BNPL activity surged amid the pandemic, driven by fintech companies such as Klarna and Afterpay. The increase came as digital sales soared in 2021, by around 19% to £183bn, with customers increasing online spending amid lockdowns. The Telegraph notes that BNPL transactions are growing at a rate of 60% to 70% each year. The paper says banks are partly attracted by an apparent generational shift, among millennial and Gen Z consumers, away from credit cards to BNPL. From a regulatory standpoint, the Financial Conduct Authority says BNPL “has provided a meaningful alternative to payday loans and other forms of credit”, but also “represents a significant potential consumer harm.” UK Finance has lobbied for tighter regulation, with this currently under consultation by the Treasury following legislation passed in 2021. A UK Finance spokesman said: “The main piece of legislation in this area – the Consumer Credit Act – is now nearly 50-years-old and in need of fundamental reform.”

Big banks yet to increase rates for savers

While the Bank of England increased interest rates from 0.75% to 1% on May 5, just eight small banks and building societies have put up savings rates since. Atom Bank, Aldermore, Secure Trust Bank, Al Rayan, Brown Shipley, Tesco Bank, Hanley Economic Building Society and Market Harborough Building Society put up savings rates by between 0.2 and 0.45 percentage points, according to analysts Moneyfacts and Savings Champion. None of the large banks has put up savings rates, but TSB, Barclays and Santander have announced mortgage rate increases. A spokesman for Barclays said it planned to increase its easy-access and cash Isa rates next month by between 0.4 and 0.9 percentage points. Lloyds, HSBC and TSB said they were keeping rates under review and Santander says savings deals linked to the Bank Rate will rise in June.

Borrowers seek to overpay mortgages

Borrowers are paying off their mortgages before the interest rate goes up again. Nearly £5.1bn was overpaid on home loans in the first three months of this year, while nearly 144,000 borrowers remortgaged over the same period, according to the Bank of England. Last year was a record year for overpayments, with £21.8bn taken off mortgages as homeowners who saved money during the pandemic lockdowns used it to pay down debt. Santander said the amount overpaid between January and April this year was even higher — up 20% on last year to £700m. Graham Sellar, the head of mortgages at the bank, said: “With the cost of living continuing to increase and rate rises more frequent, people are turning their attention to managing their debts.”

OakNorth prepared for tough times ahead

City AM interviews OakNorth boss Rishi Khosla about how the digital lender has weathered Brexit and the pandemic. He predicts the market, and the overall industry, will experience a spike in defaults as we move into a fairly tough environment and so he expects OakNorth’s default level to go up. But the firm reported a 73% jump in pre-tax profits last year to £134.5m after a surge in lending in 2021, putting it in a strong position for the next economic crisis. It also means there is no need for another funding boost on the horizon. Khosla is reserved about a possible IPO but does say London isn’t the best market to list a growth company.

HSBC prepares defence against Ping An’s break-up demands

HSBC has hired Goldman Sachs and Robey Warshaw to help the bank defend against Ping An’s call for a break up of its Asian and western operations. The Chinese insurance giant argues that the bank may no longer be able to safely navigate worsening US-UK-China geopolitical relations.

UK banks pull mortgage deals as borrowers rush to lock in rates

The average life of a mortgage deal fell to a record low of 21 days last month, leaving brokers scrambling to process applications for borrowers desperate to lock in rates before they rise again.

INTERNATIONAL

Jamie Dimon faces vote on $52.6m bonus

Shareholder advisory groups have urged JPMorgan Chase investors to oppose a one-time stock option award that will hand chairman and CEO Jamie Dimon a $52.6m bonus. JPMorgan’s board agreed to give Dimon the award last July as part of what it has described as “long-term executive retention and succession planning.” However, critics argue that the award is not sufficiently tied to the bank’s future performance.

Mizuho and SMFG reveal Russia provisions

Mizuho Financial Group added 96.9bn yen to its reserves in the January-March quarter to prepare for losses from exposures in Russia, reducing net profit by 55.6% from the same period last year to 51.8bn yen. Separately, Sumitomo Mitsui Financial Group took 75bn yen in provisions for its Russian exposure. SMFG reported a 3.7% rise in fourth-quarter net profit.

Goldman Sachs boosts hiring team in diversity push

Goldman Sachs has doubled its diversity recruiting team to help meet its goals to add more female, black and Latino staff to its workforce. Chief Diversity Officer Megan Hogan said the team’s budget had been increased by $10m to fund the expansion. The bank says it wants to have 7% of its employees with the title vice president to be black and 9% to be Latino in the Americas, while it plans to have women accounting for 40% globally by 2025.

AVIATION

BA hit by pilot rebellion over pay cuts

Nearly two-thirds of British Airways pilots are opposed to a mechanism that forces them to accept cuts to their salaries to pay for colleagues left out of work due to the pandemic. A deal struck in July 2020 saw pilots agree to temporary pay cuts of 20%, falling to 8% over the following two years. But BA has now attempted to schedule the cuts over the longer term, ending in 2028. The proposals were agreed by Balpa but rejected by 64.9% of the union’s members in a consultative ballot. Pilots were said to be irked by the plan because BA has told investors that it expects to return to profitability in the second quarter of 2022.

EasyJet offers cabin crew £1,000 bonus

EasyJet is offering cabin crew a £1,000 bonus as it looks to recruit and retain staff. The bonus will be available for all new and existing crew and will be handed out in October as a reward for efforts during this busy summer period. It matches British Airways' £1,000 golden handshake for trained staff who join from rival carriers but goes further as it will also go to current employees. The airline has recently launched a major recruitment drive and is understood to have increased its hiring target from 1,500 to 1,700. It is noted that both EasyJet and British Airways have recently cancelled large numbers of flights as a result of staff shortages.

FINANCIAL SERVICES

Cutting City regulation risks another financial crash, warn economists

The Chancellor has been warned by a group of 58 leading economists and politicians that scaling back City regulation will put the UK at risk of another financial crisis. The open letter was sent in reaction to the Queen’s speech, which outlined Rishi Sunak’s plans to “cut red tape” through a financial services and markets bill. The letter states: “We wholeheartedly support the government’s aim to stimulate long-term UK economic growth, including through financial regulation. Yet we believe that competitiveness is an inappropriate objective for regulators.” The signatories argue that competitiveness objectives could be a “recipe for excessive risk-taking”, and could create the same conditions that have since been blamed for the 2008 banking crash. “After the last global financial crisis, which cost the world economy some $10tn, it was accepted that a focus on competitiveness by the then Financial Services Authority had helped cause the disaster,” the letter added.

FCA probes traders who made £570m in an afternoon betting on oil prices

The Financial Conduct Authority (FCA) is investigating a group of British traders who made £570m in one day while betting on oil prices. The group, known as the Essex Boys, saw the windfall on April 20, 2020 - the day crude oil prices went negative for the first time in the market's history. The FCA is looking into their activities on behalf of the US Commodity Futures Trading Commission and the High Court has ordered the group to hand over information and documents about their activities. The investigation will seek to determine whether they breached rules by joining forces to push down prices.

Moneybox raises over £6m in fresh capital

Over 15,000 investors put a combined £6.26m into Moneybox after Crowdcube organised a fresh capital raise for the lossmaking wealth management company. Its smartphone-based offering of convenient, low-cost savings and investment products has won it 850,000 clients with £3bn of assets. The new money takes its notional value past the £300m mark, almost double the level of two years ago.

MANUFACTURING

UK manufacturers reshoring supply chains

Analysis by trade group Make UK shows British manufacturers are bringing back production to the UK, with three-quarters increasing their number of British suppliers in the past two years and half saying they would do so in future. The survey also found that more than a third of manufacturers had increased the total number of suppliers over the past two years. A quarter of companies now have between 50 and 100, while one in seven have more 200 on their books. Of the 132 manufacturers surveyed by Make UK, 93% blamed the pandemic for supply chain disruption, while 87% pointed to Brexit.

REAL ESTATE

Stamp duty is stifling the housing market

Economists have warned that stamp duty is a “distorting tax” that could be worsening Britain’s housing crisis by stifling activity, reports Tom Rees in the Sunday Telegraph. Kath Scanlon, deputy director at LSE, says: “Economists are pretty much agreed that this is a bad tax and some kind of ongoing property tax is a much better tax.” She adds: “It used to be the case that the average buyer purchasing the average house would not be liable for stamp duty land tax anywhere … That is definitely not the case now.” The Treasury raised £14.1bn from stamp duty in 2021/22. This was more than double the amount generated a decade ago and marks the highest total on record. The Levy accounted for 2% of all tax revenue last year compared to 1.3% in 2011/12. The typical property in Britain paid £2,100 in stamp duty before the pandemic but a property price boom has pushed the average up to £3,800.

Shaftesbury and Capco confirm merger talks

Real estate firms Capital & Counties and Shaftesbury have confirmed they are in advanced talks on a merger. Shaftesbury would own 53% and Capco shareholders the remainder in a deal structured as an acquisition of Shaftesbury by Capco. They did not give a value for the deal, but Sky News reported the merged businesses would have a valuation of £3.5bn. The companies said the merger would create a real estate investment trust focussed on London's West End with a portfolio of some 2.9m sq ft "in high-profile destinations including Covent Garden, Carnaby, Chinatown and Soho".

Cheapest and costliest Q1 sales revealed

The most and least expensive properties sold in England and Wales in Q1 have been revealed. Land Registry data shows a flat in Sunderland sold for £16,500, making it the cheapest home to change hands between January and March. At the other end of the spectrum, a home in London’s Kensington and Chelsea sold for £22m. The report also shows that there were 1,883 sales where buyers paid more than £1m, including 374 at £2m or more. Average house prices across the UK increased by 10.9% over the year to February 2022, up from 10.2% in January 2022, according to the most recent figures from the Office for National Statistics.

ECONOMY

Cabinet ministers criticise BoE over inflation

Cabinet ministers have hit out at the Bank of England over rising inflation, reports the Sunday Telegraph, citing one who said the Bank has been failing to "get things right" and another who argues that it has failed a "big test.” In what the paper calls a “highly unusual attack”, one of the senior ministers said the Bank "has one job to do” – to keep inflation at around 2% – “and it's hard to remember the last time it achieved its target." The Telegraph says the interventions reflect growing frustration among Conservative MPs and ministers about the Bank's approach to inflation, which currently sits at 7%. Lord Forsyth, a former Cabinet minister and the chairman of the Lords Economic Affairs Committee, said: "The first thing the Bank needs to do is acknowledge they made a mistake and say what they are going to do about it. One has the impression they are rather ostrich-like." Liam Fox, the former defence secretary, last week said that the Bank had "underestimated the threat" of rising inflation.

Inflation data set to show 40-year high

The Office for National Statistics (ONS) is this week expected to say that consumer price index inflation hit 9.1% in April, its highest level in more than 40 years. The ONS is also set to reveal that the rate of pay growth has stalled. Investec chief economist Philip Shaw said: "These figures will prove beyond any shadow of doubt there is a cost-of-living crisis.” Paul Dales, Capital Economics' chief UK economist, comments that households “are feeling the pinch from sky-high inflation."

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