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Daily News Roundup: Monday, 22nd March 2021

Posted: 22nd March 2021

BANKING

Treasury sells £1.1bn NatWest shares

The Treasury has sold £1.1bn in NatWest Group shares, selling the stock back to the banking group. The deal marks the Government’s third sale of its NatWest shareholding, bringing its stake down from 61.7% to 59.8%. The sale was authorised by Chancellor Rishi Sunak and managed by UK Government Investments. The Treasury said the sale “represents an important step in the government’s plan to return institutions brought into public ownership as a result of the 2007/08 financial crisis to private ownership.” Russ Mould, an investment director at AJ Bell, said: “Even though a big chunk of shares is now heading back to NatWest, it could still be a long time before the bank is able to become a fully privatised business again.” The Guardian notes that the state sold its last remaining shares in Lloyds Banking Group in 2017.

Customers missing out on security checks

Analysis shows that millions of bank customers are missing out on a service designed to help prevent fraud. Confirmation of payee (CoP), a check meaning anyone trying to transfer money into an account could only do so if they had the holder’s correct name, was launched last year. While the big six high street banks, plus smaller players including Monzo, Starling and Revolut, all operate the name-checking system, several banks have yet to introduce the service. Metro Bank, Tesco Bank, Virgin Money, Co-op Bank, TSB and Triodos Bank do not currently offer it, analysis shows.

OakNorth profits hit £77m

OakNorth boosted its profits by almost a fifth last year, with profit hitting £77.6m despite the pandemic. Customer deposits increased to £2.31bn from £1.99bn a year earlier, with the challenger bank issuing £1.1bn worth of loans, including some attached to the Government's business interruption loan schemes. CEO Rishi Khosla said the early days of the pandemic saw a slowdown in lending, commenting: “In March and April, obviously there wasn't a lot of new activity, but by May we started to see a stream of new clients.” He added that the business grew by “a modest amount … I wouldn't say a phenomenal amount”, but given the circumstances, “we still feel very good about that."

City firms eye office returns

US Investment banks are set to lead the return to the office, with the first wave of City workers preparing to head back to their desks. Several banks are preparing to open their offices again as soon as March 29, with Goldman Sachs, JP Morgan and Credit Suisse among those leading the charge as the Government's 'stay at home' rule comes to an end. Amid the coronavirus lockdowns, only key traders and staff who have not been able to work from home have been allowed into offices. With official advice suggesting people should still work from home where they can, some firms are concerned they could be penalised for bringing more staff back to the office so soon. However, a banker has told the Mail on Sunday the Government gave “a nod and a wink” that they will not be punished for allowing staff to return.

Small banks seek £28bn injection

A number of banks have written to the governor of the Bank of England urging him to relax tough rules on small banks to unleash an extra £28bn of lending. Lenders including TSB, the Co-operative Bank, Monzo and Metro Bank have written to Andrew Bailey, calling for the rules to be made fairer, warning that small lenders are hit hardest by regulation that requires banks to have a bigger capital safety net once they reach a certain size. The banks warn that the regulation puts them at a disadvantage to high street rivals. They also suggest the UK regime is tougher than those in the US and Europe, making it less attractive to build a bank in Britain.

Mortgage outlook not so good for flat hunters

More mortgage deals are now on offer for buyers with low deposits, but those looking to buy a flat are increasingly finding themselves left out. While Yorkshire Building Society's Accord Mortgages arm has become the first lender to return to the 95% LTV mainstream mortgage market, the five-year fix at 3.99% which is available to first-time buyers can't be used to buy a flat. Similarly, Nationwide will only offer its 85% mortgages for those looking to buy houses and bungalows, with flats, maisonettes and new-builds excluded. The same goes for with Virgin Money's new range of 90% home loans for first-time buyers.

UK Finance makes flexible working permanent

UK Finance has told staff it is shifting to a flexible working model, making the banking lobby group the latest City institution to change the structure of its working week following the move to remote working brought about by the pandemic. Under the new arrangement, workers will be asked which days they want to work from the office. Aviva, Deutsche Bank and Lloyds have all outlined similar plans in recent weeks.

PRIVATE EQUITY

Wealthy savers rush to VCTs

Wealthy savers are turning to risky tax-efficient investment schemes, amid a crackdown on pensions and fears of an increase in capital gains tax. The amount being put into venture capital trusts is rising rapidly as investors hunt for tax breaks. Investors can put up to £200,000 into these trusts each year and get 30% income tax relief, as long as VCT shares are held for five years. Investment firm Wealth Club has overseen £112.7m invested this way in the 2020/21 tax year, up 42.4% from the £79.1m invested in 2019/20.

INTERNATIONAL

Credit Suisse marketed Greensill funds as low risk

Credit Suisse marketed $10bn of supply chain funds backed by Greensill Capital as its safest possible investment class. Investors have been left scrambling to get their money back after Credit Suisse suspended the funds following the collapse of Greensill. With law firms in Zurich and London preparing claims against the Swiss bank, former City minister Lord Myners said Credit Suisse is on the line "reputationally as well as legally".

FINMA says banks have improved crisis plans

UBS and Credit Suisse have strengthened plans for how they would stabilise themselves in a financial crisis, Swiss financial markets watchdog FINMA has said. FINMA deemed the recovery and emergency plans to be adequate, but told both institutions that their "preparatory measures are not quite adequate".

AVIATION

BA staff to work from home

British Airways could sell its headquarters at Heathrow Airport as part of plans to let staff work from home more often. The airline is said to be looking at options for its complex in London, which currently houses 2,000 employees. Stuart Kennedy, BA's director of people, has reportedly told staff that “it's not clear if such a large office will play a part in our future”.

CONSTRUCTION

Builders told to remove 'unfair' ground rent terms

The Competition and Markets Authority (CMA) has told housebuilders Countryside Properties and Taylor Wimpey that the ground rent terms in their leasehold housing contracts should be changed. The competition watchdog said terms that double ground rent every 10 to 15 years are in violation of consumer protection law. The CMA has written to the firms, urging them to formally agree to remove ground rent terms from leasehold contracts and not use them in future agreements.

FINANCIAL SERVICES

FCA rejects independent Woodford inquiry

The Financial Conduct Authority (FCA) has rejected calls to hand its investigation into the collapse of Neil Woodford’s investment empire to an independent judge. The pace of the City watchdog’s probe has been criticised and it has been urged to hand over the inquiry, with the matter recently making headlines after Mr Woodford announced plans for a comeback. Campaigners Gina and Alan Miller argue that the investigation should be conducted by an independent third party and must also include scrutiny of the FCA’s conduct in regard to the scandal. In response, the FCA said it “cannot delegate these powers and responsibilities” as it alone has powers to investigate regulatory contraventions and take enforcement action. Cliff Weight, director of ShareSoc, a society of individual shareholders, said he was “furious” over the FCA’s stance, arguing that the watchdog should not be allowed “mark its own homework”.

City concerned over possible tax raid on pensions

The Telegraph reports that there is concern in the City that the Treasury is considering radical cuts to tax relief on pensions, with officials having signalled higher-rate tax relief on pensions contributions could be reduced. The paper says that while a pensions tax hike is not set to feature among measures being announced on March 23 – which has been dubbed “tax day” - reforms are being considered. The Chancellor is said to be considering limiting tax relief on pensions contributions to a flat rate of 20% or 25%. AJ Bell founder Andy Bell said: “Removing higher-rate tax relief would be politically toxic when people realise what it means for them”, while Peter Glancy of Scottish Widows said reform would be “horrendously difficult” to implement.

Investec profit warning linked to British bank

Investec has warned that its annual profit may fall by about a quarter, partly due to problems in its British bank. CEO Fani Titi said earnings for the year to March 31 might be between 20% and 29% lower due to challenging operating conditions and costs involved in hedging its UK book.

Post-Brexit deal for the City nears

Britain and the EU are said to be close to striking a limited deal on post-Brexit financial services co-operation following months of negotiations, with partial regulatory equivalence on some financial products and a memorandum of understanding on regulation reportedly on the horizon. The Telegraph reports that the memorandum of understanding is expected to include agreement that regulators keep each other informed of their plans for taxation and measures to counter financial crimes.

FCA urged to investigate mini-bond marketing

The Financial Conduct Authority has been asked to investigate mini-bond firm Bentley Global after a promotional video was posted on YouTube despite the marketing of mini-bonds to DIY investors having been banned since January 2020. MP Kevin Hollinrake has urged the City watchdog to intervene.

Half of firms have no carbon neutral targets

A poll suggests that financial services firms are struggling with net zero targets, with 51% saying they do not yet have a target in place to achieve carbon neutral status. The survey of financial services firms saw 57% say the climate change regulatory agenda was proceeding at the right speed, while 34% said “very few” companies in the sector currently have the appropriate focus on sustainability.

Interactive Investor explores IPO amid retail investing boom

Interactive Investor is considering an initial public offering in London this year on the back of the recent boom in retail investing.

MEDIA AND ENTERTAINMENT

Publisher to shut London office

Newspaper publisher Reach, owner of the Daily Mirror and the Daily Express, plans to shut one of its offices in central London to cut costs, with most staff told that most employees will continue working from home once lockdown restrictions ease. As well as closing an office on Lower Thames Street, Reach will also halve its Canary Wharf office space as part of changes that see it move to a hub-based model with large offices in UK cities.

PROFESSIONAL SERVICES

Britain’s professional services grapple with life after Brexit

The FT considers the post-Brexit climate for regulated professions, noting that while the UK sought a continued mutual recognition system for professional qualifications, the EU refused, with lawyers the only exception.

REAL ESTATE

Cornwall overtakes London as house hunters' most popular location

Cornwall has replaced London as the most-searched-for location on Rightmove. The website said there were more than 5m searches for properties in Cornwall in February 2021 alone. Searches for the village of Stithians in Cornwall were up by 224% compared with a year ago, while searches for Polperro, also in Cornwall increased by 203%.

British housing is expensive and its supply must increase

Research from Schroders shows that the ratio of average house prices to earnings was 8:4 in Q4, the highest level since the 1880s bar the year before the financial crisis.

ECONOMY

Government borrowing hits record February high

Office for National Statistics (ONS) data shows that public sector borrowing hit £19.1bn in February, with this £17.6bn more than in the February 2020 and the highest February borrowing since monthly records began in 1993. While the coronavirus pandemic drove up government spending, February’s borrowing came in below expectations, with City economists having forecast that the deficit would hit £21bn. The ONS data showed borrowing is on course to match the Office for Budget Responsibility’s forecast of £355bn for the 2020/21 financial year. The total for 2020/21 reached an estimated £278.8bn, pushing the UK’s total debt to £1.125tn and the debt-to-GDP ratio to 97.5%. The ONS report shows that the cost of financing the UK’s debts had remained stable over the last year, climbing from £4.2bn to £5.3bn.

Lockdown costs economy £520m a day

Centre for Economics and Business Research (CEBR) analysis suggests that each day of lockdown is costing the economy more than £500m, with output down £521m a day compared to its pre-pandemic level. The report says a quarter of businesses remain closed and 6m workers are on furlough, while the Government is borrowing almost £1bn a day to pay for support measures including tax breaks for struggling firms. The total bill for dealing with the pandemic is expected to hit £407bn, while state borrowing is set to hit £355bn in 2020/21 and another £235bn in 2021/22 to cover the cost of higher spending and lower taxes.

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