BTG Advisory
FTX collapse assures a longer crypto winter ahead
Julie Palmer of BTG Advisory considers the fallout of the collapse of cryptocurrency exchange FTX, saying the events and revelations coming out of its implosion “make plain the inadequacy of current regulatory oversight.” She suggests that the FTX collapse has “sparked contagion risk throughout cryptocurrency industry and a renewed crisis of confidence,” reflecting that details of the case “further muddy the waters” between innovation within the crypto industry and the long-term potential of digital assets, and corrupt crypto Ponzi schemes. Ms Palmer says the bankruptcy proceedings around FTX are expected to take years to resolve, due to the lack of information and legal filings which will act as an obstacle for creditors.
BANKING
BoE stability chief questions plans to relax City rules
Sarah Breeden, the Bank of England's executive director for financial stability strategy and risk, has voiced concern over plans for a major overhaul of banker oversight and ring-fencing rules. While the Treasury has set out plans to ease rules separating retail and investment banking arms so that they only apply to lenders with deposits of more than £35bn, Ms Breeden says she is “not sure there's a case for a big change" in bank ring-fencing. She also argues that the key principles of the senior managers' regime - which holds bankers personally responsible for rule breaking through the threat of fines or imprisonment - must remain. Her comments come after Chancellor Jeremy Hunt outlined a number of changes aimed at boosting the competitiveness of the City after Brexit, with many of the regulations set to be shaken up having been introduced following the banking crisis. Ms Breeden said that while there is “an opportunity to finesse,” it is “really important that we remember why we put those reforms in place.” A Treasury spokesman said the reforms “will deliver a smarter, regulatory framework, tailored for the UK's markets - that is both agile and proportionate.” Meanwhile, the FT reports that the Government’s financial services reforms have been backed by senior City executives as essential to keep the capital competitive post-Brexit, even if risks of financial stability are increased.
4m face higher mortgage payments
As the Bank of England increases interest rates in a bid to ease inflation, an estimated 4m households are forecast to be hit with higher mortgage payments in 2023, with those on tracker deals being the hardest hit. The Bank has increased rates to a 14-year-high of 3.5%, a move that could see 850,000 homeowners dealing with higher mortgage rates as of this week. Experts believe that inflation will reach 4% by February 2023, when the next base rate increase will likely take place, with analysts expecting rates to peak at 4.5% later in 2023. Research from Bestinvest suggests the average mortgage repayment will be around £250 per month higher for those with deals expiring next year.
Major lenders back new access to cash initiative
A new not-for-profit company has been launched to accelerate the expansion of the shared banking hub programme. Cash Access UK is being funded by nine of Britain's biggest lenders, including Barclays, HSBC, Lloyds and NatWest. Andrew Griffith, the City minister, hailed the creation of the company. He said: “I welcome the creation of Cash Access UK Ltd in order to deliver shared cash services in communities across the country.”
Banks boost rates after BoE announcement
App based savings providers Zopa and Chip immediately increased their easy-access rates following the Bank of England's decision to up the base rate to 3.5%. Zopa is now paying 2.86% interest, while Chase will be increasing its interest rate to 2.7% next month. JPMorgan-backed digital bank Chase has announced it will be upping rates from January 4.
INTERNATIONAL
Regulators questions banks’ resolution plans
The US Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have identified problems in the so-called living wills of Credit Suisse and BNP Paribas detailing how the banks' US operations would be unwound in the event of bankruptcy. The regulators identified deficiencies in Credit Suisse's governance and cash flow forecasting, saying the inadequacies raised questions about the bank's commitment to executing its resolution strategy. Credit Suisse has been given a deadline of May 2023 to resubmit its plan to address governance weaknesses. The Fed and FDIC found that BNP Paribas' living will did not address feedback on its 2018 plan, which asked the bank to describe how repurchase agreement activity would remain uninterrupted if the firm's US operations failed.
Goldman Sachs plans job cuts
Goldman Sachs is planning job cuts that could affect up to 8% of its global workforce, or nearly 4,000 people. Sources say managers have been asked to draw up a list of “low performers” as bosses consider where the workforce could be trimmed. They add that job losses will impact every division in the bank and occur early in the new year. This comes as the bank looks to address a downturn in business, with revenues in the first nine months of 2022 down 20% on those in 2021. CEO David Solomon recently warned that the bank needed to cut down on costs, saying: “We continue to see headwinds on our expense lines, particularly in the near term.”
UniCredit signs asset management accord with Azimut
UniCredit has agreed a deal with asset manager Azimut Holding that will see the Italian bank return to fund management a decade after it pulled away from the business. Azimut is to set up a company in Ireland which UniCredit can acquire control of in five years at the latest. Azimut is expected to keep a minority stake. Azimut's Irish asset management company will develop products to be distributed through UniCredit's network in Italy on a non-exclusive basis.
Sir Bradley Fried to replace Barroso as chair of GSI
The recently departed chair of the Court of the Bank of England, Sir Bradley Fried, has been appointed as the new chairman of Goldman Sachs International (GSI). Sir Bradley will replace Jose Manuel Barroso, the former European Commission president, who will go on to become chair of Goldman Sachs International Advisors in February. Sir Bradley is also a former non-executive director of the Financial Conduct Authority.
FINANCIAL SERVICES
FOS freezes levy and case fees
The Financial Ombudsman Service (FOS) has frozen its levy for the 2022/23 financial year, saying it recognises the financial pressures businesses are facing. The compulsory jurisdiction levy will be maintained at £106m, while the voluntary jurisdiction levy will be reduced from £700,000 to £600,000. Case fees will be held at £750. The FOS’ total income is expected to reduce from £252m in 2021/22 to £240m in 2022/23. The ombudsman expects its cost base - excluding restructuring costs - to come in at £231m in 2023/24, compared to the £238m forecast for 2022/23. The FOS expects to see a rise in complaints, from 155,000 to 183,000. Many of these will be about investments and pensions, with more complaints expected over BSPS transfer advice and cryptocurrency scams, while banking and credit complaints are expected to rise due to increases in disputed transaction complaints and the volume and sophistication of fraud and scams. Commenting on the plans, FOS chief executive Abby Thomas said: “We recognise the cost pressures on businesses and propose to freeze our levy and case fees at the same level as last year, which we hope will be welcomed.”
Alder says reforms could hinder FCA’s agility
Incoming Financial Conduct Authority (FCA) chair Ashley Alder has voiced concern that measures proposed by the Treasury could hamper the City watchdog’s agility. Chancellor Jeremy Hunt has suggested that the FCA help the Treasury boost the UK economy and international competitiveness. Speaking during a Treasury Select Committee hearing, Mr Alder addressed Treasury recommendations for the FCA, saying that “clearly there’s a relationship between new powers to the FCA and a greater degree of oversight.” He added that that only concern he had was “the degree to which the detail of scrutiny, or process, can get in the way of agility.” Asked for his thoughts on the mooted call-in power that would have allowed the Government to instruct regulators to change rules if it was deemed in the public interest, he said: "Was there a concern that the regulators were not acting in public interest? Which would be a rather odd proposition considering that’s all they’re meant to be doing.”
Investment firms target VPC
Alistair Osborne reports in the Times on how the investment firms Staude Capital and Metage Capital have requisitioned a general meeting at VPC Speciality Lending Investments arguing that the board had been “fundamentally disingenuous” in not making it clear to shareholders that a plan to “provide an opportunity for shareholders to exit up to 25% of the shares in issue in 2023 if the discount was wider than 5%” could be implemented only via a special resolution. They also argue that such a resolution could effectively be blocked by the trust’s manager, Victory Park, which controls a 20% stake. VPC shares are currently trading at a 21% discount to its last published net asset value. The two investors now propose a vote on an alternative plan: a “100% realisation opportunity every three years, starting in 2023”
REAL ESTATE
Halifax expects house prices to fall 8% in 2023
A forecast from Halifax suggests that house prices will fall by 8% in 2023, with the decline driven by higher mortgage costs and broader economic pressures. The lender said the market is rebalancing, having seen some of the steepest ever rises in prices in recent years, with the pandemic fuelling a boom. Halifax’s Andrew Asaam said: “Following such rapid house price growth, and the growing economic headwinds, a slowdown was almost inevitable.”
London landlords sell up after mortgage rate rise
Landlords were behind 19% of property sales in London so far this year as high mortgage rates destroy their profit margins, according to analysis by Hamptons estate agents. This was up from 15% last year and the highest share since 2018.
RETAIL
Retail sales fell in November
Retail sales saw a decline in November, with Office for National Statistics (ONS) data showing that volumes were down 0.4% despite the Black Friday event. This comes after a 0.9% increase in October and falls short of forecasts, with analysts having predicted a 0.3% increase. Despite the dip in sales volumes, soaring prices meant the value of sales was up 0.5% on October. The ONS report shows that online sales slipped 2.8% last month, with this partly offset by an increase in grocery sales. ONS director of economic statistics Darren Morgan noted that Black Friday offers failed to provide "their usual lift" for online sales. Aled Patchett, head of retail and consumer goods at Lloyds Bank, said falling sales “are no surprise with consumers tightening their belts in advance of Christmas spending.” He suggested that retailers will “need to balance product price with cost inflation” to boost sales.
ECONOMY
PMI figures suggest the economy is stabilising
The S&P Global/CIPS Purchasing Managers’ Index shows that the economy has stabilised, with December’s reading of 49 up on the 48.2 recorded in November and exceeding the 48 expected by analysts. Despite the better-than-expected figure, the reading still points to a contraction, with only a figure over 50 representing growth. The PMI figures show that the services sector climbed to 50, following two months of decline, with this offsetting a decline in manufacturing, where the rating of 43.9 marked the lowest since August. S&P Global economist Chris Williamson said: “The December data adds to the likelihood that the UK is in recession, with the PMI indicating a 0.3% GDP contraction in the fourth quarter after the 0.2% decline seen in the three months to September.”
Central bank gold rush triggered by Western sanctions
Figures from the World Gold Council show central banks bought more gold in the first nine months of 2022 than all the annual totals since 1967. The rush for gold was prompted by the seizure of much of Russia’s foreign currency reserves following the invasion of Ukraine. John Reade, chief market strategist at the WGC, said: “At the margin, it served to increase the tendency of emerging market central banks to diversify away from the reserve currencies they have in their portfolio, and add to gold.” He added: “It certainly made them think about what international reserves mean, what they should hold, how they should hold them.”
OTHER
26% of people expect to start 2023 in debt
More than a quarter (26%) of people will be seeing in the new year in debt, according to research from Tesco Bank. Two-fifths (43%) of 18 to 34-year-olds expect to end 2022 with some debt, while 33% of people will be in the red because the cost-of-living crisis has added to their long-term debts, the survey indicated. The types of debts covered included informal debts such as borrowing from friends or family, as well as credit card spending, overdrafts, loans or buy now pay later spending.