BANKING
Bank raises alarm over junk debt
Analysis by the Bank of England has revealed that banks, insurers and pension schemes have amassed a $405bn exposure to collateralised loan obligations (CLOs), raising fears among the world’s top policymakers that it could lead to a sub-prime mortgage meltdown. Mark Carney warned last week that leveraged loans have "all the hallmarks" of the subprime mortgage bubble that triggered the financial crisis. He said that he was concerned about the rapid pace of growth in the market. Meanwhile, former Fed chairman Janet Yellen said last month that the loans could ignite “systemic risks”. JP Morgan’s boss Jamie Dimon added that borrowers will be stranded in the next recession.
New Libor case looms large
A Connecticut-based bank has filed a proposed class action claiming that 18 banks, including Barclays, Lloyds, HSBC and JP Morgan, and ICE, the owner of the New York Stock Exchange, have been setting artificially low rates of Libor “to the detriment of investors in financial instruments”. The claim argues that the banks "corrupted" the rate-setting process by submitting lower rates to ICE, allegedly trying to save themselves hundreds of millions of dollars. If the allegations are proved, it could pave the way for further fines just years after major banks were forced to pay large penalties for Libor-rigging. An executive connected with one of the defendants dismissed the claim as “highly speculative”.
Regulator accused over mis-selling claims
Kevin Hollinrake, the chair of the parliamentary group on fair business banking, has accused FCA head Andrew Bailey of neglecting small-business owners who were allegedly mis-sold loans by Clydesdale Bank. He said Mr Bailey had failed to press the case for justice and compensation for thousands of companies, many of whom have since collapsed. The complaint relates to allegations that Clydesdale mis-sold loans containing complex interest-rate swaps to SMEs between 2001 and 2012. A spokesperson for Clydesdale Bank said it is confident its review of historic business lending products “has been conducted in a fair and rigorous manner,” adding that it has settled the vast majority of complaints made by customers.
CYBG braced for pay revolt
Advisory service ISS has told investors attending the CYBG annual meeting on January 30 to vote down proposals that would boost pay-outs by up to £2.4m for CEO David Duffy and CFO Ian Smith. Mr Duffy could receive a bonus of up to 118% of his £1m salary and long-term incentive awards of 177%, giving him a total of £4m. CYBG has said the rises are justified on the basis that its takeover of Virgin Money has increased its size and complexity - and so it must retain its top team. ISS said: “While the success or failure of the Virgin Money transaction will not be known for some time ... the company's share price has declined significantly since the deal was approved.”
Customers encounter payment problems
Hundreds of thousands of Lloyds, Halifax and Bank of Scotland customers were unable to make payments on Friday due to a problem with their online accounts. A spokesperson for Lloyds Banking Group, which owns the three brands, apologised and said no customers would be out of pocket as a result of the IT issue. Meanwhile, analysis by the FCA looking at tech incidents in the six months to September 30 shows that both Barclays and Lloyds reported more than 30, the equivalent of more than one a week.
Short-sellers out of luck at Metro Bank
Short-sellers who have been targeting Metro Bank have been forced into a retreat as investors have become more convinced of the challenger bank’s ability to gain market share. Robert Noble, equity analyst at RBC Capital Markets, said that he expected the bank to open 20 branches this year and to increase its deposits and loans by 34%. The bank has seen its shares rise by almost 30% since the start of the year.
The battle for Barclays
The FT looks at activist investor Edward Bramson’s calls for Barclays to scale back its investment bank and focus on its UK retail operation and credit card business.
Banks take stake in fintech challenger
Barclays and Santander have taken stakes in fintech group MarketInvoice, jointly leading a £26m equity investment in the tech-driven challenger which specialises in invoice finance. The deal values MarketInvoice at around £85m.
Lloyds among LGBT leaders
Lloyds Banking Group has been named among the best employers for LGBT people by the equality charity Stonewall.
Welsh customer asked not to complain in 'foreign' language
Customer Nia Lloyd has criticised HSBC after its customer support department asked her to rewrite a complaint she had written in Welsh in English instead of a “foreign” language. Her complaint questioned why the bank’s online services are not available in Welsh. HSBC has apologised.
PRIVATE EQUITY
Infrastructure funds set for boom year after record 2018
Preqin says capital flowing into infrastructure funds hit a record high in 2018, with investors allocating a fresh $85bn - up $10bn on 2017. The data provider’s Patrick Adefuye expects infrastructure fundraising to surpass $85bn in 2019.
INTERNATIONAL
Malaysia seeks $7.5bn from Goldman Sachs
Malaysia will consider dropping criminal charges against Goldman Sachs over the 1MDB scandal if the bank pays $7.5bn in compensation. Dismissing an apology from Goldman’s CEO David Solomon, Malaysia’s finance minister Lim Guan Eng said that only “repatriation and compensation” would suffice.
Analysts predicting lacklustre EU banking results
Analysts are predicting that bank results from EU lenders will disappoint after Société Générale warned that revenue in its global markets would drop by 20%. Recent notes by investors predict a downbeat run of earnings with a “messy quarter” predicted at UBS, some “considerable” underperformance at Credit Suisse and “lacklustre” results at Barclays. Profits are also expected to fall further at Deutsche Bank. Thomas Hallett of Keefe, Bruyette & Woods commented: “Lower half-year volumes, delayed refinancing and declining markets will weigh on profitability in Europe.”
Candidate from Ireland expected to be new ECB chief economist
Philip Lane, the governor of the Irish central bank, is the frontrunner to succeed Peter Praet as chief economist of the European Central Bank.
Dimon collects $2m pay rise
JPMorgan Chase boss Jamie Dimon was awarded $31m in total compensation for his work in 2018, a rise of 5.1%. His pay package included $24.5m of restricted stock tied to performance, an annual base salary of $1.5m and a $5m cash bonus.
US bank CEO pay rises at faster pace than average worker
Average wages at JPMorgan Chase, Bank of America, Goldman Sachs, Wells Fargo, Citigroup and Morgan Stanley are rising at a significantly lower rate than some of their chief executives’ pay.
Jobs lost at State Street
State Street is cutting 1,500 US workers in a bid to reduce costs and automate more of its business.
AUTOMOTIVE
Tesla to cut workforce
Tesla will cut its workforce by 7% after the "most challenging" year in its history. Founder Elon Musk said that while growth has been strong, it is difficult to make Tesla vehicles, with their new and developing technology, as cheaply as conventional cars.
AVIATION
Ryanair issues profit warning
Ryanair has cut its profit forecast blaming lower-than-expected air fares. CEO Michael O’Leary said Ryanair could not rule out having to cut fares further. Full-year profits are now expected to be in a range of €1.0bn to €1.1bn (£880m to £970m), compared with its previous forecast of €1.1bn to €1.2bn.
Flybe shareholder criticises directors
Flybe's biggest shareholder has accused the airline’s directors of breaching their duties to investors and questioned the restructuring of its proposed sale. Hosking Partners, which holds a stake of almost 19% in Flybe, is reported to have instructed lawyers to explore its options in relation to the company's proposed sale to a consortium comprising Virgin Atlantic, Stobart Group and Cyrus Capital Partners – including obtaining an injunction prohibiting the deal from being completed.
FINANCIAL SERVICES
FCA warns over life insurance promotions
The FCA has issued a warning to insurance firms which offer life cover for those aged over 50, saying consumers are being misled by promotions that imply policies will cover funeral costs in full. The FCA said its financial promotions team has seen promotions “where we believe consumers could be misled into thinking they are buying a policy that will cover their funeral costs.”
Co-op agrees to sell insurance unit
The Co-operative Group has agreed to sell its underwriting insurance business, CIS General Insurance, to Marketstudy for £185m.
Stress affects finance workers
A new study suggests that stress-related absences among staff at financial services firms increased to an average of 0.63 working days lost per employee between 2014/15 and 2016/17.
Pensions watchdog urged to take action on transfer advice
The FCA has been urged to contact customers who may have been given poor pension transfer advice, with the body halting the activity of 19 firms since 2015 over potential mis-selling.
Trading app hires executive
Stock-trading app Robinhood has hired financial technology executive Wander Rutgers, formerly head of banking and international expansion at currency exchange start-up TransferWise.
Noyer hired by SETL
UK-based fintech SETL has appointed former Bank of France governor Christian Noyer to its board as it looks to expand in Europe, Asia and the US.
LEISURE AND HOSPITALITY
Patisserie Valerie in bank talks
Café chain Patisserie Valerie is in talks to extend its cash lifeline from HSBC and Barclays as it looks to avoid administration, with chairman Luke Johnson seeking to extend an agreement to repay £9.7m of overdraft debt which was due on Friday.
Vulture funds target Pizza Express
Investment funds are reportedly targeting Pizza Express after buying up the company’s debt on the cheap. Pizza Express’ bonds saw a surge in trading at the end of last week, leading analysts to suggest that opportunists view it as vulnerable.
MANUFACTURING
Tyre firm to cut jobs
US firm Cooper Tire and Rubber Company has announced that it will stop light vehicle tyre production in Merksham, Wiltshire, and transfer work to other “global” centres”. The development is expected to lead to 300 job losses.
MEDIA AND ENTERTAINMENT
Murdoch looking to merge titles
Rupert Murdoch is reportedly seeking to merge the Times and the Sunday Times. News UK, which owns the two papers, said the change would allow more flexibility to share resources across the titles, while continuing to commit to them remaining separate newspapers with separate editors. The DCMS is to consult the public on whether the changes are warranted.
REAL ESTATE
First-time buyers overtake home-movers
First-time buyers now dominate Britain's housing market, as the level of current homeowners moving house fell the most in seven years, according to Lloyds Bank. It found that the number of home-movers fell by 4% last year from 2017, while the number of first-time buyers increased by 3%. It is the first year since 1995 that people buying their first home account for more of the market than home-movers – 51% vs 49% – Lloyds said.
Mortgage companies have abandoned self-employed workers
The Telegraph examines how self-employed homeowners face reduced choice in the mortgage market, as lenders withdraw from the sector. Fleet Mortgages pulled its entire range earlier this month, Secure Trust Bank intends to withdraw from the mortgage market permanently and Amicus Finance entered administration before Christmas.
RETAIL
Ashley eyes HMV
Sports Direct founder Mike Ashley is considering a bid to buy HMV, the music chain which entered its second administration in six years last month.
ECONOMY
Profit warnings hit 17% of firms
Analysis shows that 225 of companies on the London Stock Exchange and the AIM issued a total of 287 profit warnings among them last year. The total is the second highest since 2009. The analysis shows that of those issuing profit warnings in Q4 2018, 74% were doing so for the first time in 12 months – compared to 52% in Q1 2018.
OTHER
BoE sports club sees losses
Figures show that the Bank of England's sports facilities in Roehampton have made losses of almost £1.5m over the past three years. The centre's operating losses almost doubled to £755,000 in 2017/18, after losses of £385,000 and £312,000 in the previous two years.