BANKING
Bankers’ bonuses double since 2008
TUC research shows that bankers’ bonuses have doubled since the 2008 financial crash. The federation of trade unions said bonuses in finance and the insurance sector have reached a record £20,000 a year on average, with average City bonuses up by 101% in cash terms between 2008 and 2022. Frances O’Grady, general secretary of the TUC, said: “Everyone who works for a living deserves to earn a decent living, but ministers are holding down the pay of millions of key workers, while lining the pockets of City financiers.” With plans to scrap the bankers’ bonus cap announced last month, Ms O’Grady said: “There is simply no justification for lifting the cap on bankers’ bonuses – especially when nurses and teaching assistants are having to use food banks to get by.” There are 3,519 bankers working in the UK making more than €1m a year, according to the European Banking Authority (EBA). The EBA data shows that 27 UK bankers were paid more than €10m in 2019, while two UK-based asset managers received between €38m and €39m, and one merchant banker was paid €64.8m.
Chancellor could consider windfall tax on banks
The Mail on Sunday’s Patrick Toother suggests that Chancellor Jeremy Hunt could consider a windfall tax on banks that could raise up to £90bn, saying that the interest paid on commercial banks' deposits has been “spiralling higher” as the base rate has risen. Bank of England deputy governor Paul Tucker has urged the Government to consider reducing the interest paid on some deposits held at the Bank by high street lenders. He said this could save the Treasury between £60bn and £90bn in interest withheld from banks such as NatWest, Lloyds and HSBC over the next two years. While officials last week appeared to rule out the option, Mr Hunt told BBC Radio 4 he is “leaving open all possibilities” as he looks to balance the Treasury's books.
FCA fines Gatehouse Bank £1.5m
The Financial Conduct Authority (FCA) has fined Sharia-compliant challenger bank Gatehouse more than £1.5m over poor fraud checks and controls. The City watchdog found that the bank failed to make adequate checks on customers in countries with a higher risk of money laundering and terrorist financing. Mark Steward, an executive director at the FCA, said: "Gatehouse Bank's failures exposed itself to the risk that it might be used as part of a laundering process for illegal funds. While not deliberate, there can be no excuse for failures as serious as this." Gatehouse said it has taken steps to improve and "invested significantly" in financial crime controls.
INTERNATIONAL
JPMorgan profit down 17%
JPMorgan has reported a 17% fall in third-quarter profit. The bank’s adjusted profit was $3.36 per share, above analysts' average estimate of $2.88. JPMorgan's profit fell to $9.74bn, while revenue climbed 10% to $32.72bn. The bank added $937m to its loan-loss reserves. Bond trading revenues rose 22% while equity trading revenues fell 11%.
Wells Fargo's Q3 revenue climbs
Wells Fargo saw revenue hit $19.5bn in Q3, an increase of 3.6%, with this driven by $12.1bn in net interest income. This marked a 36% increase from the same period a year ago.
Morgan Stanley profit falls as deals drought extends
Morgan Stanley's profit dipped in the third quarter amid a slowdown in global dealmaking which hit the investment bank's core underwriting business. The bank reported a profit of $2.49bn, compared with $3.58bn.
Citigroup reports 25% slump in Q3 profit
Citigroup has reported a 25% drop in Q3 profit, with a decline in deals at its investment banking business having an impact. Net profit was $3.5bn in the three months to the end of September, compared with $4.6bn a year earlier.
Credit Suisse faces funding shortfall
Credit Suisse faces a funding shortfall of as much as £7bn, according to a report by Goldman Sachs which says the lender will face a widening gap between now and 2024. Investors are pressing Credit Suisse to sell assets and reduce its reliance on risky investment banking.
FINANCIAL SERVICES
Hargreaves Lansdown faces court over Woodford scandal
Hargreaves Lansdown faces a High Court battle over its involvement in the Woodford investment scandal. A claim has been issued on behalf of 3,200 investors who lost money as a result of the closing and subsequent dismemberment of the Woodford Equity Income investment fund. Dealings in the £3.8bn fund were suspended in June 2019 and Neil Woodford was subsequently removed as the fund's manager. The fund closed and most of the assets were sold off in a fire sale, with losses for 300,000 investors. Since the fund's closure, £2.5bn has been returned to investors. While the claim by litigation specialist RGL Management targets wealth platform Hargreaves Lansdown, other Woodford related claims already lodged in the High Court by Harcus Parker and Leigh Day have been against Link Fund Solutions – a firm that as authorised corporate director oversaw the Woodford fund on behalf of investors. The Financial Conduct Authority last month issued a warning notice to Link Fund Solutions, noting that it is minded to impose a £50m fine on Link, plus require it to pay redress to Woodford investors of up to £306m.
City brokers cut jobs as deals slow
A slowdown in deals in the City – and an expectation that business is unlikely to pick up in the coming months - has forced a number of stockbrokers to reduce their headcounts. Numis, FinnCap, Peel Hunt and Zeus Capital are all understood to have axed staff as mergers and acquisitions and new stock market floats dry up amid tough economic conditions. Zeus is cutting close to a quarter of its staff, losing about 15 people, while FinnCap is thought to be losing 10 staff out of 150. Numis has cut a similar number but has more than 300 employees. Peel Hunt is said to be undergoing similar cuts, with a spokesman saying it “reviews headcount all the time”.
Revolut blames Brexit as it shifts trading customers to Lithuania
Fintech firm Revolut says Brexit is behind its decision to shift more than 1m trading customers from London to Lithuania in order to market its products to European clients. The firm will transfer all European Economic Area customers from its UK-based subsidiary to its Lithuanian business by the end of this year. Accounts filed at Companies House say: “Due to legislation introduced after the United Kingdom’s departure from the European Union, the company cannot currently offer marketing of its products to its EU based customers.”
Investor set to oppose Rio Tinto's Turquoise Hill takeover
SailingStone Capital Partners, a prominent investor in Turquoise Hill Resources, intends to vote down's Rio Tinto £2.9bn proposal to take complete ownership of the company. The investment group said approval of the deal would amount to one of “the biggest corporate governance failures” in history and represent poor value for shareholders. SailingStone believes the Rio Tinto offer “fails to adequately compensate” minority investors, even though it is a £600m increase on a deal that was rejected by a committee of directors formed by Turquoise Hill. It has also claimed that FTSE 100 firm Rio Tinto had a “well-established history of corporate malfeasance.”
Financial services jobs slip
The number of jobs available in London's financial services industry fell by 30% between the second and third quarters, according to Morgan McKinley research. The period of national mourning following the death of the Queen played a part, with many companies putting recruitment on hold. Hakan Enver, managing director at the employment specialist, described September as a "month like no other."
MEDIA & ENTERTAINMENT
Activist investor cuts stake in Vodafone
Activist investor Cevian Capital has reduced its stake in Vodafone amid concern over whether the telecoms company will be able to reverse its sluggish performance. Cevian built a significant but undisclosed stake in Vodafone last year through shares and derivatives, becoming one of the ten largest shareholders. It had been pushing Vodafone's management, including chief executive Nick Read, to simplify its international portfolio and sell poorly performing divisions, but reportedly sold the vast majority of its stake in June.
Motorola faces price controls over emergency services contract
The Competition and Markets Authority (CMA) is to introduce price controls on how much Motorola can charge the Government for running the communication network used by emergency services, after finding it will make £1.1bn in excess profits by 2026. The CMA is proposing a direct intervention through a price control to stop Motorola overcharging until the new 4G-capable ESN network comes online in 2026.
REAL ESTATE
Commercial property values set to slide
Analysis by Goldman Sachs suggests the sharp rise in borrowing costs since the Government’s mini-Budget means that warehouses, offices and shopping centres will lose as much as a fifth of their value over the coming two years. The report says the value of commercial properties in the UK will be 15% or 20% below summer 2022 prices by the end of 2024. The five-year swap rate, used to determine finance terms for commercial borrowers, has climbed above 5% in recent weeks, having been at 0.55% this time last year. Goldman analysts estimate that commercial landlords could see borrowing costs could rise by 75% over the next five years. They forecast that rental yields will have to rise by about 135 basis points over the next two years. With this expansion unlikely to come from rental growth, the analysts suggest it will have to be driven by a drop in headline prices.
10-year deals are cheapest
Data from Moneyfacts shows that 10-year mortgage deals are now the cheapest on the market. The average rate on a 10-year fix is currently 5.78% and while this marks a jump from the 2.99% average recorded a year ago, the increase is significantly less than for shorter-term fixes. Over the same period, the average rate on two-year fixes has nearly tripled from 2.25% to 6.47%, while five-year rates have climbed from 2.55% to 6.29%. Nick Mendes of broker John Charcol said more buyers would have to turn to longer-term fixes as they could become the only way to buy or remortgage. Meanwhile, analysis by Capital Economics shows that at the start of 2021 a buyer could borrow five times their salary but the maximum has since shrunk to four times earnings.
RETAIL
US supermarket rivals merge in challenge to Walmart
American grocer Kroger has agreed to buy its rival Albertsons in a $24.6bn attempt to tackle Walmart. Confirmation of the takeover sent shares in Ocado, the British technology business helping Kroger to build its online delivery operation, up by 11%. Analysts said the acquisition could expand openings for the FTSE 100 group in the US.
ECONOMY
Bailey: Steeper rate rise may be needed
Bank of England governor Andrew Bailey has warned interest rates may need to rise by more than previously expected. With the next rate decision due on November 3, Mr Bailey said "inflationary pressures" mean a "stronger response" could be needed from the Bank than it had anticipated in August. Speaking at the headquarters of the International Monetary Fund, he said officials “will not hesitate” to raise interest rates to meet the Bank’s inflation target of 2%. The Bank’s Monetary Policy Committee increased interest rates by 0.5% to 2.25% on September 22 and, before Mr Bailey’s comments, markets were expecting a rise of between 0.75% and 1% in November. Mr Bailey said the Bank would assess the Budget statement from new Chancellor Jeremy Hunt, which is due on October 31, before the November 3 meeting, noting: “We will know the full scope of fiscal policy by then.”
Goldman Sachs: UK set for ‘more significant' recession
Analysts at investment bank Goldman Sachs have downgraded Britain’s economic outlook, pointing to weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April as it warned it expects a “more significant recession.” The investment bank revised its UK economic output forecast for 2023 to a 1% decline, having previously estimating a 0.4% drop.
Inflation expected to hit 10%
With the latest inflation data set to be published on Wednesday, City analysts are expecting the headline rate to climb from 9.9% to 10%, taking inflation to five times the Bank of England’s 2% target. Some analysts have suggested the rate may have held steady, however, with Sanjay Raja, senior economist at Deutsche Bank, saying: “Falling pump prices, alongside travel and accommodation prices (post summer) could end up keeping the annual CPI rate flat in September.”
OTHER
Treasury winds up pandemic support fraud squad
A Treasury anti-fraud squad set up to recover money stolen from the Government’s pandemic support schemes is to be wound up. The Taxpayer Protection Taskforce was set up in March 2021 and involved 1,265 experts working with HMRC to try to get back cash stolen or wrongly claimed from the Treasury’s emergency schemes. The Treasury said it would be able to get back only between £800m and £1bn of about £5.8bn stolen or incorrectly taken by workers and businesses from government support programmes. The £5.8bn is 7% of the £81.2bn spent on the schemes during the pandemic. The Treasury has now revised down estimates of the amount its taskforce would recoup to between £525m and £625m. This is up to £375m less than originally intended. Officials are to “wind down” the taskforce from next March and return all staff to “business-as-usual tax compliance work” by September.