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Daily News Roundup: Monday, 1st August 2022

Posted: 1st August 2022

BTG Advisory

Returns add to pressure on online retailers

Andrew Dalton and Julie Palmer of BTG Advisory consider the climate for the fast fashion sector, saying that while online retail was initially one of the winners amid the pandemic, rising costs, supply chain bottlenecks and labour issues have all hit revenues and profitability. They explore how a shift in consumer behaviour, which had served as a tailwind for online retailers, is now serving as a “significant headwind,” with the impact of inflationary pressures weighing on discretionary spend and retailers coming under increasing pressure as product returns accelerate. Mr Dalton and Ms Palmer note that the recent higher rate of returns exposes a weakness in the online retailer business model, with returns costing retailers more than original delivery costs. They add that by the time returned products make it back to stores, they are often out of season and sold at a discount. They go on to warn that in the event of a recession, the rate of returns “may well resoften and consumer behaviour may evolve to a broad-based reduction in sales, darkening the outlook for the sector already experiencing severe price competition, inventory challenges and EU red tape.” They suggest that retailers “would be minded” to assess the outlook for demand in their sector and the implications for margins, debt serviceability costs and profitability, while suppliers to online retailers may wish to review their trade credit insurance.


NatWest sees profit climb 13%

NatWest has reported pre-tax profits of £2.6bn for the six months to June, with this up from the £2.3bn recorded the previous year. Higher lending incomes on the back of increased interest rates drove the 13% increase and saw the bank raise its full-year revenue forecast to around £12.5bn, up from previous estimates of £11bn. Chief executive Alison Rose said the bank had delivered a “strong performance in the first half of 2022, building on two years of progress against our strategic priorities.” She added: “We are growing our lending to customers and continuing our £3bn investment programme to create a simpler and better banking experience whilst delivering sustainable dividends and returns for our shareholders.”

HSBC pushed to give board seat to Chinese investor

HSBC is facing calls to appoint its largest shareholder, Chinese insurer Ping An, to its board ahead of a hostile meeting with investors. Ping An, which has a 9% stake in Britain’s biggest bank, earlier this year called for a debate on the structure of HSBC. Christine Fong, who represents about 500 investors, will attend a meeting between HSBC’s board, led by chairman Mark Tucker, and retail investors in Hong Kong on Tuesday. She wants Ping An-backed members on the bank’s board to help bolster the interests of local investors. Ms Fong also supports a potential spin-off of the Asian business, which could be listed in Hong Kong.

Starling founder: Banks don't have to rip off their customers to make a profit

Anne Boden, founder of Starling, reflects on the performance of the online bank, which has broken into the black with a profit of just over £32m. She describes this as a “big moment,” saying: “I am proving a point. When I was knocking on doors in 2014 to raise funding, I was saying it is possible to build a bank with great service and free current account banking – and be profitable.” Ms Boden adds: “You don't have to rip off customers, you can be fair.” Dismissing claims by traditional banks that free in-credit current accounts are loss-leaders, she says: “For donkey's years they have been saying they can't make money on current accounts. But we have a free current account, we are making money and giving a great service, because we are efficient.”

Sunak in cash access pledge

Former Chancellor Rishi Sunak has set out a plan to save the high street, vowing to cut the number of empty shops by 2025 and protect cash machines from closure. Mr Sunak has vowed to protect access to cash, saying that with banks set to close more than 500 bank branches this year alone, he will give the Financial Conduct Authority powers to intervene and stop banks from closing down free cash machines.


FDIC urges banks to address crypto claim concerns

The US’ Federal Deposit Insurance Corporation (FDIC) is urging banks dealing with cryptocurrency companies to make sure customers know which of their funds will be insured by the government in case of collapse. The banking regulator said it is concerned consumers may be confused about how safe their money may be when placed in crypto assets. It warned that several crypto companies had led customers to mistakenly believe that their products were FDIC-insured. The FDIC noted that it only protects deposit products offered by insured banks, like checking and savings accounts, when these institutions fail.

BNP Paribas records rise in revenue

French bank BNP Paribas saw net income rise 9.1% to €3.18bn year-on-year in Q2. Across the group, revenue rose 8.5% to €12.78bn, while operating expenses were up 7.6% at €7.72bn. Activity grew across retail banking, with an 11.1% spike, while investment banking posted a 10.6% rise. The bank said money set aside for failing loans in Q2 stood at €789m. 


FCA rules will set ‘higher and clearer’ consumer protection standards

Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority (FCA), believes the City watchdog’s Consumer Duty will improve customer support, cut call centre waiting times and end rip off fees. Writing in the Mail, he says the rules “will set higher and clearer standards of consumer protection across financial services and get firms in the sector to focus on delivering good consumer outcomes.” He adds that as financial services firms start implementing the Consumer Duty over the next 12 months, the FCA wants them to “focus on how they'll make sure their customers get products and services that are right for them, with no rip off charges and fees.” Mr Mills says that rather than focusing solely on tackling harm “after it has happened and worsened," the Duty "should help us to prevent some serious problems from happening in the first place.” He adds that the rules will also enable the regulator to tackle new harms as they emerge “in a constantly changing industry.”

FSB: Small firms facing rising insurance premiums

Analysis by the Federation of Small Businesses (FSB) has found that two-thirds of small firms have seen their insurance premiums rise in the last year. Of the businesses whose premium costs had risen, 52% said that they went up by 11% or more. FSB national chair Martin McTague said: “Rising cover prices leave firms caught between a rock and a hard place, forced to pass on higher costs to customers, or to cut back on investment and expansion – or even to risk opting for a lower level of cover, which may leave them painfully exposed if the worst should happen.” The FSB says the Financial Conduct Authority should be required to intervene if there are businesses that are unable to obtain insurance. It also believes that the FCA should carry out a market study of professional indemnity insurance given recent price increases.

FCA begins regulation of pre-paid funeral plans

The Financial Conduct Authority has officially taken pre-paid funeral plans under its remit, meaning all providers must now adhere to the regulator’s rules. This will mean a ban on cold calling and commission payments. There will also be changes to appointed representative permissions and regulated standards on governance and financial resilience. With the FCA taking responsibility for the sector as of yesterday, funeral plan holders will be able to refer complaints about a firm to the Financial Ombudsman Service and will be covered by the Financial Services Compensation Scheme if their provider goes out of business. The City watchdog has authorised 26 providers, who together hold approximately 1.6m plans – with these accounting for 87% of the market. The FCA has said 13 firms that applied but have not been authorised have until October 31 to transfer their plans to authorised firms or refund their customers. FCA executive director Emily Shepperd described the new authorisation process as “robust” and said the regulator has worked “tirelessly” to assess funeral plan providers.  

NatWest considering Quilter bid

NatWest is in the early stages of studying a bid for Quilter, according to City sources. Private equity firms including CVC, Bain Capital and BC Partners have also shown interest in the FTSE250 wealth manager in recent weeks, the sources noted.


AstraZeneca lifts forecasts as sales surge

AstraZeneca has lifted its full-year sales forecast as it sees a continued rise in business from its new medicines. Half-year revenue rose by 48% to $22.2bn, with sales in its second quarter ahead of City forecasts. AstraZeneca's sales have grown across all its therapy areas, particularly oncology, and from last year's $39bn acquisition of Alexion, the US rare diseases company. The growth was led by sales of its cancer treatments, which rose 18%. AstraZeneca expects full-year revenue to rise by a percentage in the "low 20s" rather than the "high teens" forecast previously.


Rate rises set to bring an end to soaring house prices

Larry Elliott in the Guardian says interest rate rises designed to tackle soaring inflation are set to bring an era of "ever-rising" house prices to an end. He says that while prices across major economies are dropping, Britain appears to be bucking the trend, with data from Halifax showing house prices are rising at an annual rate of 13%. However, he says “the picture is changing” and points to Office for National Statistics data on housing affordability based on the ratio of property prices to average earnings. Mr Elliott says: “There comes a point where housing simply becomes too expensive for potential buyers, but a prolonged period of ultra-low interest rates means it has taken time to arrive at this reality checkpoint.” Central banks, he says, “have made the unaffordable affordable by ensuring monthly mortgage repayments remain low.”

Building society restricts second home loans

Leeds Building Society is restricting mortgage offers on second homes in an attempt to help more buyers get on the property ladder. Richard Fearon, chief executive of the member-owned lender, said funding second properties is not compatible with its purpose to “put home ownership within reach of more people.” Leeds BS said that it will keep lending on buy-to-let properties and holiday homes, but only if they have people staying in them for the majority of the time.


CMA investigates brands’ eco-friendly claims

The Competition and Markets Authority (CMA) has launched an investigation into whether eco-friendly and sustainability claims made by fashion chains Asos, Boohoo and George at Asda constitute greenwashing. The CMA has written to the firms outlining its concerns, detailing that it would use its information-gathering powers to obtain evidence to progress its investigation. Sarah Cardell, the CMA’s interim chief executive, said it would be scrutinising green claims made by the brands and “won’t hesitate to take enforcement action” if they are found to have been misleading customers.


Consumer credit jumps in June

Bank of England figures show that people borrowed an extra £1.8bn in June, up from £900m in May. The data shows that consumer credit growth accelerated at the fastest rate in three years last month. Households placed an extra £1bn on their credit cards, with another £800m on car dealership finance, personal loans and other consumer credit. The annual growth rate for all consumer credit increased to 6.5% in June, the highest rate since May 2019, while credit card borrowing surged 12.5%, the highest rate since November 2005. Jane Tully, the director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said the figures were “a warning sign that for some the pressure is already beginning to tell.” Paul Heywood, the chief data and analytics officer at the credit reference agency Equifax, said: "Higher-income households are increasingly dipping into their savings, reversing a trend seen during the pandemic, while those on lower incomes are turning to the credit industry to help them ride out the storm."

Bank of England expected to hike rates

City economists expect the Bank of England to increase interest rates 50 basis points this week, marking the Monetary Policy Committee’s (MPC) biggest rise in rates since the Bank was made independent 25 years ago. An increase in rates this week would also mark the first time the MPC has upped rates at six consecutive meetings. This comes with inflation hitting 9.4% and speculation that the Bank could hike its forecast to nearly 12%. Sanjay Raja, senior economist at Deutsche Bank, believes “lingering price pressures” are likely to push the Bank’s inflation projections up further over the near and medium term. Paul Dales, chief UK economist at Capital Economics, said that higher inflation could mean 50 basis point rate hikes at the MPC’s September and/or November meetings are possible.


Truss calls for Bank of England review

Foreign Secretary Liz Truss has called for a review into the Bank of England, noting that its mandate had not been reviewed properly since it was established in 1997. The Conservative leadership candidate, who recently said she wanted to set "a clear direction of travel" for monetary policy and review the Bank’s mandate, has insisted that a review would not impair the Bank’s independence, and that she did not have specific changes in mind. She noted: “The Bank of England is independent, it makes decisions about interest rates completely independently of government.”

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