SVB UK execs paid £15m in bonuses days after rescue
HSBC signed off on a bonus pool worth between £15m and £20m for staff and senior executives at the British arm of Silicon Valley Bank (SVB UK) after it took the bank over last week. SVB UK was left on the brink of collapse after its US parent company failed and was taken into government ownership. Sources told Sky News that had SVB UK not been acquired solvently, the bonuses would not have been paid this week. Meanwhile, the FT reports that BlackRock warned SVB in early 2022 that its risk controls were “substantially below” its peers. Finally, HSBC chief Noel Quinn is interviewed by the Sunday Times on why he moved to save SVB UK, describing it as a “strategically important” deal that would protect “entrepreneurs who are breaking the frontiers of technology.” On whether the UK was heading towards a banking crisis, Quinn said: “No, definitely not. I think the UK is well capitalised, profitable, with strong liquidity and good regulation.”
Change to bank capital rules to put £44bn in SME lending at risk
A report commissioned by SME lender Allica found that proposed changes to UK bank capital rules could result in a £44bn drop in lending to UK SMEs. Elsewhere, Lisa Jacobs, chief executive of Funding Circle, warns that jitters in the banking sector risked compounding issues in the non-bank funding sector and threatened credit provision for small and medium companies. Jacobs said she expected Funding Circle’s own wholesale funding to tilt more towards asset managers over the next 12 months “versus banks given some of the disruption”, but that the platform was in a strong position due to its diversity of funders.
UK banks told to disclose their exposure to global bond markets
The Bank of England held talks with British lenders last week to ascertain their exposure to global debt markets amid fears of contagion following the collapse of Silicon Valley Bank (SVB), the crisis facing Credit Suisse and a rush to shore up the finances of US regional lender First Republic Bank on Friday. SVB went bust after its bets on government bonds turned sour following a rise in interest rates and regulators in the UK are checking to see if British lenders could fall foul of similar bets.
UBS takes over Credit Suisse in £2.6bn deal
Credit Suisse has been rescued by its Swiss rival UBS in a deal backed by the Swiss government. The move comes after an emergency SFr50bn ($54bn) credit line provided by the Swiss National Bank (SNB) last week failed to halt a steep decline in the share price. The SNB has agreed to extend an SFr100bn liquidity line backed by a federal default guarantee to UBS while the government is providing a loss guarantee of up to SFr9bn, once UBS has borne the first SFr5bn of losses on certain portfolios of assets. Credit Suisse shareholders were deprived of a vote on the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15bn (£2.6bn). This is less than half what it was worth at close of trade on Friday and a fraction of its peak valuation of £65bn, and leaves shareholders including the Saudi National Bank, the Qatar Investment Authority and Blackrock, facing huge losses on their investments. The SNB said the deal would “secure financial stability and protect the Swiss economy in this exceptional situation.” Swiss authorities had been liaising with regulators in the US and the UK, who welcomed the deal. The Financial Conduct Authority said on Sunday it was "minded to approve" the takeover to support financial stability as both UBS and Credit Suisse have operations in London.
Central banks increase dollar flows
Six of the world’s biggest central banks on Sunday night agreed to increase the supply of US dollars to each other to ensure there are enough flowing throughout the global system. The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank will boost their swap lines in an effort to stop markets seizing up. The Bank of England said the latest action would “ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.” The central banks will shift from weekly currency trading between each other to daily commencing immediately and lasting until at least April.
FDIC leans toward SVB break-up
US regulators are looking to sell Silicon Valley Bank in two parts after failing to attract bids for the entire company. The Federal Deposit Insurance Corp (FDIC) is mulling a sale process for SVB’s private bank, which sits within its retail operations, with bids due on Wednesday. The FDIC will also invite bids for SVB's depositary bank, which is also part of its retail operations and includes all its consumer deposits, with bids due on Friday. A sale process for the entire bank will also be relaunched.
Deutsche Bank top brass hit with cuts to bonuses
Deutsche Bank’s supervisory board has cut €1bn from its executive bonus pool, having criticised “missed milestones” and delays in improving internal controls, with chief executive Christian Sewing’s annual bonus down by €145,000.
Bank of America to buy Signature Bank, says Ackman
Hedge fund manager Bill Ackman has claimed that Bank of America is going to acquire Signature Bank.
Scottish Mortgage denies board member's departure
Scottish Mortgage Investment Trust has refuted claims that non-executive director Amar Bhide has left, despite reports he was removed from the board, having raised concerns about the trust’s exposure to private assets, saying it did not have the resources to monitor the investments. Mr Bhide, a non-executive director since 2020, criticised the composition of the Scottish Mortgage board and questioned its ability to manage its £3bn portfolio of unlisted assets. He also said chairwoman Fiona McBain was "long past the point at which she had any independence and her role so far as I can see is to protect managers from criticism and questioning." Ms McBain said she has "complete confidence" in the board's standards of governance. Scottish Mortgage yesterday issued a statement saying that "at present" Mr Bhide remained a director and "has not resigned or been removed."
RIT Capital accused over bonuses, fees
RIT Capital has been accused of paying out large bonuses to managers on the back of unrealised gains from venture capital investments while investors suffer meagre returns. Alan Brierley, an analyst at Investec, said in a note that RIT Capital, formerly known as Rothschild Investment Trust, had paid out £55m in share-based payments over three years to J Rothschild Capital Management, the management company, while producing a shareholder total return of only 5.6% over the period. Brierley accused RIT of a lack of transparency over fee payments and said its detail on manager rewards compared very unfavourably with investment trusts such as 3i, Caledonia and Witan.
Apex in talks over bid for MJ Hudson
Financial services firm Apex Group is in advanced talks about a takeover of asset management services provider MJ Hudson Group. Apex Group, which provides services to $3trn of client assets, is part-owned by Mubadala, the Abu Dhabi sovereign wealth fund, and the private equity firms Carlyle and TA Associates. MJ Hudson has struggled in recent months after an accounting review uncovered details of loans guaranteed by its chief executive to subsidiaries of the company. Its shares were suspended, and its auditor resigned after less than 18 months.
CMA: £1.2bn merger could reduce competition
The Competition and Markets Authority (CMA) says a £1.2bn deal between data management and software companies UnitedHealth and Emis could push up costs for the NHS by reducing competition. The CMA is concerned that the deal could reduce competition for two types of software, saying this could potentially drive-up prices for the NHS or reduce the quality of the services it receives. The CMA’s senior mergers director, Sorcha O’Carroll, said: “This deal could see the NHS lose out on the benefits of competition, including innovation in these products and services and getting better value for money.” The competition regulator has given UnitedHealth and Emis five days to outline how it could mitigate some of its concerns, otherwise it will progress to a more in-depth investigation and could potentially block the deal.
British manufacturing rebounds, but outlook tough
UK manufacturing bounced back at the start of the year, according to industry body Make UK, whose latest survey found new orders and intentions to invest rose in the first quarter, despite a rise in cost inflation that kept margins shrinking. However, the industry is still forecast to contract by 3.3% this year before rising by 0.8% in 2024. Fhaheen Khan, senior economist at Make UK, said: “Manufacturers have seen a rebound at the start of the year as conditions have improved in their major markets and business confidence has improved. However, one swallow doesn't make a summer and it is far too early to say the worst has passed.”
End of cheap mortgage deals hurts homebuyers
Homeowners whose fixed-rate mortgage deals ended between September and February are facing on average a 27% increase in repayments, according to the broker London Money. Average monthly repayments are up £317.50 on a loan of about £325,000. Martin Stewart, the founder of London Money, said this is cash that won’t be supporting the local economy. Meanwhile, Capital Economics says only a third of the impact of higher interest rates had fed through to households because so many were still on old fixed mortgages. Some 1.7m homeowners will face higher payments this year when their deals end. But with high interest rates threatening banks around the world, some believe their continued rise could soon be at an end.
FRC closes Sports Direct International probe
The Financial Reporting Council (FRC) has announced that it is closing a seven-year investigation into Sports Direct International, taking no further action despite having fined the company’s auditors last year. The regulator has closed a case centred on the preparation and approval of Sports Direct International’s accounts for 2016. Sports Direct International is the former name of Frasers Group, the owner of the House of Fraser, Sports Direct and Flannels retail chains.
OECD: UK only G7 country in recession this year
Forecasts from the Organisation for Economic Co-operation and Development (OECD) suggest the UK is set to be the only member of the G7 in recession this year, while across G20 nations, only Russia will perform worse. The report says GDP will fall by 0.2% over 2023, with this is an improvement on the 0.4% the OECD predicted in November. Germany, the second-worst performer in the G7, is forecast to see its economy grow by 0.3%. Among the G20, the UK only avoids coming bottom of the ranking by the fact Russia’s economy is predicted to shrink by 2.5%. The OECD says the 0.2% decline in GDP this year will be followed by 0.9% growth next year. In its November report it predicted growth of 0.2% over 2024. Data shows that the UK was the best-performing G7 economy last year, recording GDP growth of 4%. Chancellor Jeremy Hunt said: “The British economy has proven more resilient than many expected, outperforming many forecasts to be the fastest growing economy in the G7 last year, and is on track to avoid recession.” The OECD expects global GDP to grow by 2.6% this year and 2.9% in 2024. China and India are set to see the biggest gains this year, at 5.3% and 5%, respectively.
BoE must reverse its QT policy
David Blanchflower, a former member of the Bank of England’s monetary policy committee, is urging Threadneedle Street to slash interest rates and stop selling government bonds in the wake of the turmoil in the banking sector. Markets are betting the Bank will either raise rates to 4.25% or leave them unchanged, but Blanchflower said they should be cut from 4% to 3% and bond buying should be resumed at a rate of £50bn a year to prevent the economy sliding into recession. Blanchflower said: “The Bank of England is showing signs of dangerous groupthink when it comes to [quantitative tightening] QT, believing that it must reverse the previous policy of QE when they have not as yet offered any credible reason for doing so.” Fellow economist Richard Murphy also urged the Bank to reverse QT stating that the policy, “if combined with more austerity in fiscal policy and high interest rate might have disastrous consequences for the UK economy.”
One in four savers taking more risks with money
Research by the Financial Services Compensation Scheme (FSCS) shows that 26% of savers are taking more risks with their money in an effort to land bigger returns amid the cost-of-living crisis. A poll of 4,000 UK adults saw 23% of consumers with a pension say they have either decreased the percentage they contribute or stopped contributing to their pension entirely over the past few months. With interest rates and inflation soaring, the FSCS found that of those eligible to draw on their pensions, 29% have moved money out to cover day-to-day costs. Lila Pleban, chief communications officer of FSCS, said: "When money is tight, it's inevitable that alongside compromises and budget planning some people are likely to take more risks, which could plunge them further into financial difficulties.”