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Daily News Roundup: Monday, 24th October 2022

Posted: 24th October 2022

BANKING

Banks flex back as Jeremy Hunt mulls windfall tax

A possible windfall tax raid on the banking sector would be an extremely negative signal to international investors, industry leaders have said. The warnings come amid rumours that Chancellor Jeremy Hunt is mulling the idea as he looks to fill a £40bn black hole in the books. Some suggest the interest rate payments made on bank deposits sitting at the Bank of England could be a target, but trimming these is seen by many as an intrusion on the BoE’s independence. Banks are in line for up to £90bn of interest payments over the next two years on deposits of around £900m they hold at the Bank. HSBC, Lloyds, Barclays and NatWest are due to issue their third quarter results this week and analysts forecast them to make £32bn between them this year, slightly more than in 2021. But UK lenders are already facing a 33% corporation tax rate next year if the 8% bank surcharge is added to Mr Hunt’s proposed 25% tax rate. David Postings, chief executive of trade body UK Finance, said: “We urge the Government to consider the surcharge very carefully and not put at risk the competitiveness of the UK's banking and finance industry, which is the engine of the economy, providing jobs and investment up and down the country.”

FCA to fine Barclays £50m over secret payments to Qatar

Barclays is facing a £50m penalty for failing to disclose fees it paid to Qatar to participate in two multibillion-pound rescue fundraisings during the 2008 financial crisis. The Financial Conduct Authority (FCA) accused the bank of conduct that was “reckless and lacked integrity” 14 years ago, when bosses agreed to pay secret fees of £322m to Qatari investors in return for their participation in the capital raising. Mark Steward, the watchdog’s executive director of enforcement and market oversight, said: “At the height of the financial crisis in October 2008 Barclays paid hundreds of millions of pounds in fees to certain Qatari investors so that they would contribute new capital.” He continued: “Barclays did not inform the market and shareholders about these matters as required. There was no legitimate reason or excuse for failing to disclose these matters, certainly no basis for doing so because of the financial crisis.”

Santander calls for better protection from scammers

Santander UK is calling for all banks and payment service providers to apply a broad set of rules to curb authorised push payment (APP) fraud. Other sectors should join in with more consistent data sharing and the mandatory use of confirmation of payee to “break the spell” of scammers, the bank said. The Online Safety Bill should also tackle purchase scams originating on social media. Enrique Alvarez, head of everyday banking at Santander UK, said: “We must all come together and address the issue because currently the only real winners are the fraudsters.”

Goldman Sachs doubles down on the rich

Brooke Masters in the FT explores why Goldman Sachs has dropped its plan to build a mass-market consumer banking brand and instead focus on attracting more high-net wealth customers. Matthew Lynn in the Sunday Telegraph also looks at how Goldmans’ Marcus brand is in retreat, with the unit reportedly losing over $1bn a year. Lynn says the struggles challengers continue to face serve to illustrate how solid traditional lenders really are.

Bill will prevent mutuals being milked for cash

A new bill to prevent mutuals being snapped up by private equity firms and milked for cash is being pushed through Parliament. The Co-operatives, Mutuals and Friendly Societies Bill, tabled by Labour MP Sir Mark Hendrick, is due for its second reading in the Commons this week. It would help mutuals to raise money from external investors if they need more cash, but also protect savings from being used for other purposes.

Rates drop for first time since mini-Budget

The average rate on a two-year fixed-rate mortgage deal fell from 6.65% on Thursday to 6.55% on Friday, according to Moneyfacts, a data company. It’s the first fall in mortgage rates since the start of September in an early sign that Chancellor Jeremy Hunt's mini-Budget U-turn has calmed the market.

JPMorgan hires Deutsche Bank dealmaker

One of Deutsche Bank's most senior dealmakers, Richard Sheppard, has been hired by JPMorgan to strengthen its UK investment banking business. Sheppard will join in November as co-head of its UK investment banking business sharing responsibilities with Charlie Jacobs.

PRIVATE EQUITY

Private equity firms prepare for slew of take-private deals

Research by the investment bank Numis found a majority of private equity dealmakers are planning take-private deals in the third quarter of next year when valuations are expected to have fallen to new lows. Stuart Ord, head of mergers and acquisitions at Numis, said: “We spoke to 200 people and they think the valuation knife is still falling. They think that the equity markets have a way to go. Why would you bid now if you think values are going to go down? There's a possibility that UK companies go through a wave of profit warnings as they hit the results season when it comes around.” Over 80% of respondents felt confident that City institutions would be receptive to their advances as they face an uptick in redemption requests from their own clients.

FCA asks private equity about knock-on effects of market turmoil

The Financial Conduct Authority has been questioning private equity companies on how they and their investors have been affected by recent market turmoil as the regulator assesses potential risks in the industry. The discussions highlight concern among regulators about oversight of the private equity industry, the FT says, adding that the talks were informal and not part of any investigation.

INTERNATIONAL

Goldman settles £20m employment tribunal case with former banker

Goldman Sachs has settled a claim by former banker Thomas Doyle who claimed he had made protected disclosures as a whistleblower but was bullied and then unfairly dismissed.

CONSTRUCTION

Interserve fined £4.4n for failing to prevent cyber-attack

The Information Commissioner’s Office has fined Berkshire construction company Interserve £4.4m after it failed to put in place security measures to prevent a cyber-attack. Hackers were able to access the personal data of up to 113,000 employees, including bank details, national insurance numbers and special category data including ethnicity, religion, sexual orientation and health conditions.

FINANCIAL SERVICES

European pension funds move to cap illiquid assets

European retirement funds are rethinking their investment strategies following the market turmoil seen in the UK in recent weeks, Bloomberg reports. The volatility left pension pots nursing heavy mark-to-market losses, forcing them to unload everything from government bonds to securitized debt. According to PensionsEurope, funds are now looking to cap their illiquid assets, which have grown to represent about a quarter of all holdings compared with 7% twenty years ago. A reversal of the pursuit of higher yielding private assets is likely to be bad news for private equity and real estate allocations.

AmEx sets aside more money to cover potential loan losses

American Express on Friday reported a 24% rise in revenue to $13.6bn for the third-quarter, boosted by a 21% jump in card spending. However, the card lender built provisions to $778m in the quarter to prepare for potential defaults, a sharp contrast from a year earlier when the economy's rapid recovery from the pandemic allowed it to release reserves of $191m.

Link up for sale

Link Fund Solutions, which is under investigation for its handling in the collapse of Woodford Equity Income fund, has been put up for sale. The Financial Conduct Authority has said the company could face a £50m fine and £306m in redress payments. Thousands of investors had large sums trapped in the fund, which collapsed in 2019.

London Stock Exchange revenues boosted by surge in volatility

Market volatility and a rush to raise collateral boosted earnings for the London Stock Exchange. The group on Friday reported a 16% year-on-year rise in third-quarter revenues to £1.9bn.

Letter: If there is to be an LDI inquiry, here’s a suggestion

Jupiter fund manager Richard Buxton says UK pension funds have been forced to disinvest from UK equities because volatility in daily priced equities is deemed a risk when it is in fact irrelevant for long-term savings vehicles.

LEISURE & HOSPITALITY

Pret A Manger founder warns restaurants face a 'terrifying' future

Pret A Manger founder Julian Metcalfe claims that Britain's restaurants face a 'terrifying' future due to soaring food and energy costs. Metcalfe, who sold the sandwich chain for £364m, said the cost of some ingredients have suddenly doubled while sales for basic foods have halved. He told the Telegraph he knows competitors' energy bills have gone up tenfold because “food production uses a huge amount of energy”. He suggested that to improve conditions in the economy at large, the Government should reduce VAT, business rates and loosen controls on immigration.

UK retail and hospitality groups warn of Christmas staffing shortages

Retailers and hospitality groups in the UK are warning of staffing shortages in the run-up to Christmas. This comes as wage inflation cuts in to shrinking margins.

MEDIA & ENTERTAINMENT

Ofcom proposes easing net neutrality rules

Proposals published by Ofcom on Friday suggest easing net neutrality rules to give telecommunications and internet providers more flexibility. Net neutrality rules, which are inherited from EU legislation, mean networks must not favour one set of services or content over another. But Ofcom claims the rules “constrain the activities of broadband providers, and could be restricting their ability to develop new services and manage their networks.” Ofcom is soliciting responses to the proposals until mid-January and plans revised guidance in the second half of 2023. Changes in the rules would ultimately be a matter for the Government.

REAL ESTATE

UK property site Rightmove targets expansion in appointing new chief

UK property site Rightmove targets expansion in appointing new chief Rightmove has appointed Johan Svanström as its new chief executive, replacing Peter Brooks-Johnson in March next year. Svanström joins from Stockholm-based private equity firm EQT.

Crumbling commercial property valuations and sales signal looming slump

Commercial property values in the UK fell 2.6% last month, according to index provider MSCI, the largest monthly fall since July 2016 and dealmaking has ground to a halt.

RETAIL

Consumers trim spending to send sales down 1.4%

New figures from the Office for National Statistics (ONS) show retail sales volumes fell by 1.4% between August and September, significantly more than the 0.5% expected by economists. The drop means that retail sales are 1.3% below their pre-pandemic levels recorded in February 2020. Darren Morgan, director of economic statistics at the ONS, said: “Retailers told us that the fall in September was partly because many stores were closed for the Queen’s funeral but also because of continued price pressures leading consumers to be careful about spending.”

ECONOMY

Moody's downgrades UK economic outlook to 'negative'

Moody's has changed its UK's economic outlook from stable to negative due to political instability and high inflation. The credit ratings agency said there were "risks to the UK's debt affordability", but maintained its overall Aa3 rating. Moody’s became the third of the big three raters, alongside Fitch and S&P, to revise down the UK’s borrowing outlook in the past month. But the verdict is the first from a ratings agency since the sacking of Kwasi Kwarteng as Chancellor, the resignation of Liz Truss as prime minister and the reversal of the bulk of the £45bn in tax cuts announced on September 23rd. To return to a stable outlook, Moody’s said the UK needed to have “confidence in its commitment to fiscal prudence”.

Lord King: We’ll pay for pandemic money printing

Former Bank of England governor Mervyn King has said significantly higher tax rates will be needed if the UK is to finance increased spending. Lord King of Lothbury told the BBC the Government needed to be honest about the consequences of locking the economy down during the pandemic and the high inflation resulting from money printing; about the cost of supporting Ukraine and how the debt burden must be shared – not just placed on our children and grandchildren. He explained that all central banks "made the mistake" during the lockdown period of printing a lot of money to support the economy. That was the wrong policy and all central banks are all facing now very high inflation rates of close to 10%, he added.

OTHER

Bank of England's new chairman will keep Barclays shares

David Roberts, the incoming chairman of the Bank of England, told MPs on the Treasury select committee that he has chosen to carry on owning shares in Barclays adding that he had already disclosed the holding to the Bank. Mr Roberts takes up the post on Monday. A Bank spokeswoman said: “David complied with all the requirements of the appointment process.”

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