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Daily News Roundup: Monday, 1st June 2020

Posted: 1st June 2020


UK banks grant 1.5m payment holidays

Britain’s banks have granted almost 1.5m payment holidays to consumers struggling to repay their credit cards and personal loans during the coronavirus pandemic. UK Finance figures reveal that 877,800 credit card accounts had been given a payment freeze by May 21, while monthly repayments on 608,000 personal loans had been paused. Analysis shows that less than 2% of the 51m credit card accounts in Britain are on pause and less than 7% of loan payments frozen. Stephen Jones, chief executive of UK Finance, said: “Banks and building societies will continue to help their customers get through the crisis and have a wide range of support available”.

Nationwide profits fall

Annual profits fell at Nationwide Building Society due to higher provisions for bad debts and an extra charge related to mis-selling PPI. Its net interest margin, a closely watched measure of profitability, fell to 1.13% from 1.22%, with pre-tax profits down 44% to £466m from £833m. This came as it booked a £101m hit from expected credit losses and took a £39m charge for PPI claims. The lender said 280,000 customers had so far opted to take a payment holiday, which has cost the company £101m. CEO Joe Garner voiced concern over the Bank of England potentially following other central banks in pushing interest rates into negative territory, saying: “Continued supply of credit into the economy from the financial services sector is a really big factor. Policyholders are thinking about what negative rates would do to the supply of credit. The governor said he wouldn't rule it out and wouldn't rule it in.”

Starling sees £40m in new funds

Starling Bank will use £600m of Government-backed loans toward its commitment to lend almost £1bn to small businesses. The bank, which last year promised to lend £913m by 2023 as part of its application for an official grant to boost its small-business lending division, was awarded £100m, the second biggest amount after Metro Bank. It has lent or committed £600m in bounce back and coronavirus business interruption loans in the past few weeks. Starling has also announced that it had raised £40m in new funds. The digital bank said it has seen a "robust" number of new customers setting up accounts, adding: "The lockdown has accelerated the shift to digital channels."

RBS chairman calls for toxic loans fund

Royal Bank of Scotland chairman Sir Howard Davies has called for the creation of a vehicle to clean up toxic debts left by companies unable to repay emergency loans, warning of the risk that some public money might not be paid back from Government-backed coronavirus loans. Sir Howard cited a survey of 500 companies by the new Business Banking Resolution Service that shows of the 56% which had accessed government-backed help, 43% did not expect to repay the loans - either because they would not be able to, or because they did not think the government would chase the debt. Sir Howard has suggested that if loans were not repaid, there would have to be a "holding entity that will hold these loans and convert them into some equity-like structure".

Banks fear up to half of £18.5bn bounce back loans will default

Banks have warned that half of the £18.5bn handed out under the Bounce Back Loan Scheme is unlikely to be repaid, flagging concern that a number of small businesses may collapse.

Banking CEO questions loan scheme planning

An anonymous boss at one of Britain's challenger banks has questioned the Treasury’s decision not to include smaller lenders in its lifeline loan scheme for small businesses, saying mid-tier banks were not involved when the Treasury and the British Business Bank set up the Bounce Back Loan Scheme. They told the Mail that had lenders such as TSB, Metro Bank and Starling known the details in advance, they would have been able to avoid some of the issues that have beset the programme. The CEO said: “They didn't tell us anything – we found out about Bounce Back on the day that it launched.”

HSBC hires strategy chief

HSBC CEO Noel Quinn has appointed a strategy expert, naming Chira Barua group head of strategy. Mr Barua, previously a partner at McKinsey & Co and an analyst at AllianceBernstein, will assess which markets and areas HSBC should focus on over the next 5 to 10 years.


Clayton Dubilier & Rice to bailout SIG

Clayton Dubilier & Rice is to bail out roofing and insulation supplies group SIG, contributing half an expected £150m fundraising. It will effectively be taking a 25% stake in the enlarged capital of the company, with the option in a secondary fundraising to take that holding up to 29.9%. That falls just short of the 30% level that the need to launch a formal takeover is triggered.


BBVA calls for easing of coronavirus restrictions

Carlos Torres, executive chairman of Spain’s BBVA, which is to cut its financial targets for 2020, says coronavirus restrictions should be eased to help kick-start the economy.


Commercial vehicle production slumps

A shutdown of factories amid the coronavirus crisis saw the UK produce just 30 commercial vehicles in April, a 99.3% year-on-year decline. Britain’s car engine factories produced just 830 last month, compared with the 178,000 assembled in the same month last year. The figures come on the back of data showing that only 197 cars were built in UK factories in April. Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said: “These figures, though unprecedentedly low, are not surprising given the exceptional circumstances.”


Emirates reveals redundancy plan

Emirates has said it will have to make staff redundant due to the coronavirus pandemic. A spokesperson for the carrier said it was "doing everything possible to protect jobs", adding that it would treat those who it let go with "fairness and respect".


Building bosses seek delay to VAT reforms

Construction trade bodies are calling on the Chancellor to delay a change in VAT which they say threatens to the survival of firms hit by the coronavirus crisis, arguing changes would put pressure on cash-strapped firms. The reform, which seeks to help reduce tax fraud, will mean VAT charges on certain construction services are paid directly to HMRC instead of the supplier as of October. In a joint letter, more than a dozen trade bodies, including the Federation of Master Builders and Build UK, warn that many firms no longer have the financial resources or man power required to prepare for the changes, with many staff in finance and IT departments currently on furlough. They also warn that the change could hit cash flow for businesses no longer receiving VAT payments, particularly smaller firms and those that have requested Government-backed rescue loans.


Warburg Pincus steps in to rescue merger

Sky News reports that Warburg Pincus is investing more than £250m to rescue the merger between Tilney and Smith & Williamson. The injection of funds will, it is hoped, reassure the Financial Conduct Authority (FCA) over the deal after the watchdog failed to approve it earlier this year. Sources close to the deal said the FCA’s concerns centred on capital and debt levels. If the merger gets agreed it will create a privately owned wealth management and professional services group with £45bn of assets under management (AUM). It would become the UK's fourth-largest wealth manager by AUM.

Neil Woodford fund: investors still await final payout

The FT reports that investors in Neil Woodford’s Equity Income fund are still waiting for the final payout as the coronavirus pandemic stretches out the liquidation process.


Bella Italia owner eyes sale

Casual Dining Group, owner of brands including Bella Italia and Café Rouge, is in talks with several possible buyers over a sale of the business, saying it has received strong expressions of interest from other restaurant groups and private equity firms.


Manufacturing needs support, says industry body

Industry group Make UK has called for the Government to provide an emergency bailout for the manufacturing sector as the coronavirus pandemic continues to hit factories, driving down production levels and leaving some firms on the brink of collapse. Make UK has warned that failure to provide support could drive companies out of business, saying firms need help to service debts accumulated during the crisis.


Nationwide: House prices set to fall 13.8%

Nationwide expects house prices to fall 13.8% this year as people delay home moves, with CEO Joe Garner saying first-time buyers and second-steppers would be deterred from purchasing in the midst of a recession. However, he does expect prices to rebound, saying: “We do think it is inevitable that there is some kind of recession, but over the long term, property prices have always trended upwards.” Mr Garner added that Nationwide was seeing huge demand from customers looking to remortgage their homes following the base rate cut from the Bank of England, with the building society also expecting a surge in the number of customers looking for equity release products and retirement interest-only mortgages.

BAM takes property company stake

Brookfield Asset Management has snapped up a 7.3% stake in British Land, taking a £260m stake that could lead to a takeover approach. The deal was made just days after the landlord reported that upheaval in the retail sector - exacerbated by coronavirus - had wiped more than £1bn off the value of its property empire.


National debt set to hit £2trn

The cost of the coronavirus crisis is set to see Britain’s national debt reach £2trn for the first time, with projections from the Office for Budget Responsibility suggesting the milestone will be hit next month. Hitting the £2trn mark – a decade after the £1trn point was first exceeded - would push national debt beyond 100% of national income for the first time since the end of the Second World War. This forecast comes in the wake of a Bank of England warning that Britain faces the deepest recession for more than 300 years, while borrowing this year is predicted to reach £300bn. Philip Booth, senior academic fellow at the Institute of Economic Affairs, said the likely scale of the national debt following the pandemic “will be staggering”, adding: “We cannot just deal with this by more austerity.”


Employers to contribute to furlough scheme from August

Chancellor Rishi Sunak has announced that firms will have to begin contributing towards the Government’s furlough scheme from August. From August firms will be asked to pay pension and national insurance contributions while the Government continues to pay 80% of salaries up to £2,500. From September the Government will cover 70% of salaries up to £2,190, with companies asked to pay the remaining 10%. For October, the final month of the initiative, employers will pay 20% of wages, with the Government covering 60%.

Business survey points to reopening

A Bank of Scotland survey suggests there are signs companies that shut down completely in April are starting to reopen. Its latest business barometer found a fifth of firms were not operating, down from 32%. Meanwhile, Scottish firms operating at less than 50% capacity had increased 18 points to 43%. Three-quarters of businesses reported disruption to their supply chain, with 14% of those saying it would take more than a year for it to return to normal. The report also suggested confidence rose 17 points during May.

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