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Daily News Roundup: Monday, 25th September 2023

Posted: 25th September 2023


British Business Bank records £135m loss

The British Business Bank (BBB), the Government's economic development agency, reported a loss of £135m in the year to March. The bank, which supports investments in SMEs, was affected by a drop in valuations across its portfolio. Despite this, the bank's performance remained ahead of expectations. Louis Taylor, the bank's CEO, expects the pressure on valuations to continue over the next 12 to 18 months. "Given the longer-term ten-year horizon for most of our investments, we would expect an overall upward trajectory despite these in-year fluctuations," he said. The BBB, which is seeking an enlarged role in implementing pension reforms and greater independence in managing funds, has supported £12.4bn of wholesale finance and its programmes have helped fund the growth of the small business finance market. 

Barclays to close overseas accounts

Overseas customers who bank with Barclays are being given a six-month warning that their current and savings accounts will be closed, potentially leaving them unable to access their funds. British expats living abroad will no longer be able to hold a Barclays UK account, as the bank reviews its international offerings. Wealthy expats can open a global account with Barclays, but must maintain a balance of £100,000 to avoid a monthly charge. While Barclays has faced criticism for its handling of the closures, the Financial Conduct Authority says that banks have the right to set their own rules on customers they accept.  It is noted that Lloyds Banking Group previously closed accounts held by 13,000 expats in Europe. 

Experts expect mortgage rates to fall

Brokers believe that lenders are likely to drop mortgage rates further after the Bank of England opted not to increase interest rates. Nick Mendes, mortgage technical manager at John Charcol, said: “I would not be surprised to see rates of 4.5% for five-year fixes in October,” while David Hollingworth of L&C added: “We’ve already seen improvements in fixed rates and that looks set to continue or even accelerate in light of improved inflation figures and a hold in interest rates.” Aaron Strutt from Trinity Financial expects more lenders to lower their fixed mortgage deals in the coming weeks, commenting: "Mortgage rates need to be closer to 4% to bring more confidence back to the market.” The UK's biggest building society, Nationwide, has reduced rates by up to 0.31 percentage points, with TSB and NatWest also nudging down the cost of their new fixed rate mortgages.

Investec expects UK business to drive earnings growth

Banking and wealth management group Investec expects its UK business to ensure earnings growth but warned that credit losses will be towards the higher end of expectations. The bank forecasts its headline earnings per share to be between six% and 12% ahead of last year. Adjusted operating pretax profit meanwhile will be between £428.7m and £449.6m, compared to £405m last year. A strong performance in the UK in particular is expected to boost performance, with its UK arm expected to be 25% higher than last year. Investec has benefited from higher interest rates and growth in its loan book. However, the firm expects to report a credit loss ratio “closer to the upper end of the through-the-cycle range”.


Italy to water down tax on banks

Italy will water down a windfall tax on banks by giving lenders the option to boost their reserve buffers instead of paying the levy. The proposed changes, which are set to be approved by the upper house of Parliament, come after criticism from the industry, international investors and the European Central Bank. Under a government amendment, the tax targeting banks' net interest margin, a measure of profit resulting from the gap between lending and deposit rates, will be capped at 0.26% of risk-weighted exposures. Instead of paying the tax, banks can boost their non-distributable reserves by an amount equivalent to two and a half times the levy and setting that aside specifically in their accounts. Such an option is expected to exempt cooperative banks from the tax, as they usually put aside a large part of their profits as reserves. Italy intends to use revenues from the levy to fund tax cuts and state guarantees on loans to SMEs.

Binance.US seeks dismissal of SEC charges

Binance.US and CEO Changpeng Zhao have filed court papers seeking the dismissal of a lawsuit brought against them by the US Securities and Exchange Commission (SEC). The SEC brought charges against Binance, Binance.US, and Zhao in June, following a lawsuit from the US derivatives watchdog. The SEC has accused Binance and Mr Zhao of violating securities rules, mishandling customer funds, and misleading investors and regulators. In their petition, Binance and Mr Zhao claim that the SEC overstepped its authority and attempted to impose penalties retroactively.

Goldman fined $6m for inaccurate trading data

Goldman Sachs has agreed to pay a $6m fine for sending inaccurate or incomplete trading data to the Securities and Exchange Commission (SEC) over a period of 10 years. The SEC found that Goldman's submissions had 43 different types of errors in data files sent to regulators. The Wall Street bank admitted to the findings and also reached a settlement with the Financial Industry Regulatory Authority. Goldman says it has taken steps to address the issues.

Commerzbank new strategy plans leaked

Shares of Commerzbank dropped 3.4% after details of the lender's new strategy plans were leaked. The bank aims to pay out at least half of its profit as dividends and share buybacks, and increase its return on equity to more than 8% in 2024, more than 9% in 2025, and more than 10% in 2026. Commerzbank has been undergoing a major overhaul, cutting its workforce and branch network. The bank also plans to highlight untapped potential in wealth management and trade finance, as well as increase its digital offerings.


PRA chief calls for climate event stress tests

Sam Woods, chief executive of the Prudential Regulation Authority (PRA), has suggested testing the financial system to see if it could withstand extreme and sudden climate events, highlighting that banks and insurers have only been tested against the gradual impacts of climate change. Mr Woods said: “The one thing that we are going to need to test is what would happen if we had a very large climate event in the UK, or possibly another major financial jurisdiction.” He went on to say that officials have yet to conduct tests relating to events “that will lead to a dramatic change in policy” from the Government and have a “very sudden effect in financial markets.”

Labour vows to deliver BNPL regulation

Labour is set to make regulating buy now pay later (BNPL) a pledge in its election manifesto, vowing to deliver consumer protection for such credit. Regulation of BNPL has stalled since Government proposals that would require lenders to credit check prospective borrowers and give users credit card-style protections were published in October 2021. After revising the proposals, a Treasury consultation on prospective rules was published in February. Citizens Advice has stressed the need for regulation, saying consumers often sign up for BNPL without realising they are taking on debt.

FCA to crack down on workplace harassment

The Financial Conduct Authority (FCA) is launching a crackdown on workplace misconduct, with a consultation paper set to propose tougher rules against perpetrators and companies that fail to punish abusive behaviour. The changes will include new guidance on “serious instances of harassment and bullying” and how “non-financial misconduct” forms part of the regulator’s “fit and proper” test for financial services employees. The City watchdog will insist that companies recognise a “lack of diversity and inclusion” as a “non-financial risk.”

Regulator looks into Gap insurance market

The Financial Conduct Authority (FCA) is investigating the Gap insurance market to ensure consumers are not being ripped off. Gap insurance covers the depreciation of a car if it is written off or stolen. The average Gap premium is around £126 a year for standalone cover, and £131 as an add-on. The FCA is concerned that only 0.34% of add-on Gap policies are claimed on every year, meaning the typical driver claims once every 294 years. For standalone Gap, 1.8% of people taking out the policy make a claim every year, meaning the average customer claims every 55 years on average. The regulator is also worried about the level of commission charged on Gap insurance, which can be as high as 70%. The FCA has told Gap insurers to prove they are providing fair value to their customers or expect further action.

Life insurance policies unfairly sold, warns FCA

Life insurance policies are being unfairly sold to households who do not need them, with advisers still earning commission on unsuitable policies, the Financial Conduct Authority (FCA) has warned. The FCA has raised concerns about the high commissions paid to advisers, which could unduly influence the sale of insurance products. The FCA has also highlighted poor selling practices of protection products, particularly reviewable whole of life policies, which may not deliver good outcomes. These policies can result in increased premiums or reduced payouts as the insured's health deteriorates. The FCA has called for insurers to take appropriate action to address these issues. The Association of British Insurers says it will discuss the FCA's concerns and consider further action.


Builders warn of 50,000 fewer new homes

Figures from the Home Builders Federation show 110,598 homes were completed in the first half of 2023, marking an 11% decline on 2022 and a 12% fall compared to pre-pandemic levels. The number of new homes receiving planning permission in the three months to June was down 20%, year-on-year. Reflecting on the data, Rico Wojtulewicz of the National Federation of Builders said: “If things continue, we could see up to 50,000 fewer homes being completed over the next 12 months.” He added: “The Government's plan to stop mandatory minimum housing targets, and higher interest rates have slowed housing sales,” going on to describe this as “a perfect storm.”


Retail sales up 0.4% in August

Office for National Statistics (ONS) data shows that retail sales were up 0.4%, month-on-month, in August, reversing the 1.1% fall recorded in July. ONS senior statistician Heather Bovill said: "Retail recovered a little from the large fall seen in July, driven by a partial bounce back in food and a strong month for clothing, though sales overall remain subdued.” She noted that internet sales dropped slightly “as some people returned to shopping in person following a very wet July,” while fuel sales also fell, “with increased prices hitting demand." The data shows that sales volumes were down 1.4% year-on-year.


Recession risk rises

The UK is at growing risk of recession, with analysis by S&P Global and the Chartered Institute of Procurement and Supply (CIPS) showing the sharpest monthly fall in private sector activity, outside of the pandemic, since the financial crisis. S&P Global/CIPS data shows a steep decline in service sector and manufacturing output in September, with total new work in the private sector falling for the third month in a row. The S&P Global/CIPS UK PMI composite output index fell from 48.6 in August to 46.8 in September on a gauge where a reading above 50 separates growth from contraction. Chris Williamson, the chief business economist at S&P Global market intelligence, said: “The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK. Underscoring the severity of the UK’s deteriorating situation, September’s downturn is the steepest since the height of the global financial crisis in early 2009, barring only the pandemic lockdown months.”


Pension funds losses hit £626bn

'Gold-plated' final salary pension schemes in the private sector have lost £626bn due to failed investment strategies, according to new figures from the Office for National Statistics. The value of these defined benefit plans fell almost a third from over £2trn to less than £1.4trn. The fall was accelerated by a sharp drop in the price of gilts following last year’s controversial mini-Budget. The schemes, which had traditionally invested heavily in UK shares, adopted Liability Driven Investment strategies based on gilts, which proved to be low risk. However, the crisis revealed hidden borrowing in the pension system, leading to a fire-sale of assets. Despite the losses, overall funding levels have improved as the estimated obligation to pensioners has fallen faster than their assets. Experts warn that schemes continuing to invest in gilts and avoid shares may be a driver in the poor performance of the FTSE index.

CBI secures emergency funding

The Confederation of British Industry (CBI) has secured emergency funding from a number of banks, having come under financial pressure following a sexual misconduct scandal that prompted a number of businesses to withdraw their membership of the lobby group. The business group, which reportedly sought to raise £3m and had to cancel its in-person AGM due to budget issues, said it had "secured the financing necessary to overcome the short-term cash flow challenge." HSBC, NatWest, Lloyds Banking Group and Barclays are among banks that have reportedly provided a revolving credit facility, a type of funding which essentially works like an overdraft.

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