BANKING
HSBC shareholders force vote on breakup
HSBC will give its shareholders a vote on a proposal by Hong Kong investors who are calling on the bank to conduct a strategic overhaul, including a spin-off of the Asian business. The vote was requested by Ken Lui, an investor who runs a group campaigning for a spin-off of the Asian arm. The bank’s chairman, Mark Tucker, has urged shareholders to vote against the plans at the annual shareholder meeting on May 5. HSBC has dismissed the break-up plan and in the notice to shareholders set out the case against changing the bank’s structure. “Over the years [the bank has] evaluated radical structural reforms for the potential to create shareholder value,” it said, adding that as recently as H2 2022 it had “considered and evaluated” such reforms. It concluded that all the options would “destroy value”, incur “significant one-off costs” and would “result not only in a material loss of value for shareholders but also lower dividends.”
Banks better prepared for turmoil
Reflecting on turmoil in the banking sector, Richard Partington in the Guardian says the global banking system has not appeared so fragile since the 2008 financial crisis, warning that a credit crunch is coming. On the climate for UK banks, he says banking industry experts argue that problems are limited to a few troubled banks, with major lenders “in a much healthier position than 15 years ago … after a steady ratcheting up of bank capital and liquidity requirements.” Mr Partington notes Bank of England analysis showing that the biggest lenders have core capital ratios three times higher than before 2008, while annual stress tests suggest banks could weather an economic storm twice as strong as the last big crash.
City braces for tighter regulation after banking turmoil
While ministers are set to reform regulation across financial services, loosening certain rules post-Brexit, City bosses are bracing for tighter oversight following a period of turmoil in the banking sector.
INTERNATIONAL
Olaf Scholz dismisses fears over Deutsche Bank
Germany’s chancellor Olaf Scholz attempted to reassure markets on Friday after the cost of Deutsche Bank’s 5-year credit default swaps, used to insure against the risk of it not paying debts, jumped to a four-year high. Shares in the lender fell as much as 14% before closing down 8.5% in Frankfurt - a five-month low. Concerns were raised about Deutsche’s exposure to US commercial real estate lending, where the bank has $16.8bn outstanding, and its large derivatives book. But Scholz said there was no reason to be concerned adding that Deutsche “has fundamentally modernised and reorganised its business and is a very profitable bank.” Concerns over the banking sector continue to swirl following Credit Suisse’s collapse. Shares in Commerzbank and Société Générale also fell on Friday, by 5% and 6%, respectively. Fidelity International’s Salman Ahmed says: “There is a trust deficit in the market,” explaining that the tightening in monetary policy by central bankers over the past year was “starting to shake some of those foundations of the banks, in ways that were unexpected.”
UBS and Credit Suisse among banks probed over sanctions busting
The US Justice Department is probing a number of banks, including Credit Suisse and UBS, for helping Russian oligarchs evade sanctions. Subpoenas demanding information from individual bankers were sent before the crisis that engulfed Credit Suisse and its takeover by UBS. It is noted that Credit Suisse looked after as much as $60bn for Russian clients at its peak, generating hundreds of millions of dollars in revenue each year.
Executive pay at Silicon Valley Bank soared after big bet on riskier assets
Analysis by the FT reveals executive pay at Silicon Valley Bank soared after the bank invested in long-term debt, particularly mortgage bonds, whose value was rapidly depressed when interest rates rose sharply.
Swiss minister: Credit Suisse rescue averted another financial crisis
Switzerland’s finance minister says that without the state-brokered takeover of Credit Suisse by rival UBS, there may have been a new global financial crisis. Finance minister Karin Keller-Stutter says Credit Suisse could not have survived without the £2.65bn deal, adding that the collapse of Credit Suisse “would have sent other banks into the abyss.” She added that it was “clear to everyone” that a restructuring or liquidation of Credit Suisse "would trigger an international upheaval in the financial markets.”
SEC prepares legal action against Coinbase
The Securities and Exchange Commission (SEC) and Coinbase appear headed for a legal showdown that stands to have outsize consequences for both sides. The SEC notified Coinbase that it plans to sue the firm for allegedly violating a range of investor-protection laws.
Turner attacks Credit Suisse regulation
Lord Turner of Ecchinswell, the former chairman of the Financial Services Authority, believes the Swiss authorities have done an “odd thing” by putting Credit Suisse's shareholders before some of its bondholders in the rescue of the lender. He also said he was surprised that regulators had failed to get a “grip” of Credit Suisse before the woes surrounding the group escalated.
CONSTRUCTION
Directors quit Vistry over CEO bonus plan
Two non-executive directors are reportedly stepping down from FTSE 250 housebuilder Vistry in a row over a bumper pay deal for chief executive Greg Fitzgerald that has been proposed by a group of US shareholders. The investors, said to include the activists Inclusive Capital and Browning West, want Vistry’s board to implement a bonus scheme tied to its share price. Under the proposal, Mr Fitzgerald would have been in line to receive £60m if the shares hit £18 within three years. While this was rejected by the board, chairman Ralph Findlay has agreed to revisit the subject. Nigel Keen, who chaired the board’s remuneration committee, and fellow non-executive director Katherine Innes-Ker are understood to be stepping down in protest.
FINANCIAL SERVICES
UK to update insider trading and market manipulation rules
A joint statement from the Treasury and the Financial Conduct Authority has laid out plans for an overhaul of the UK’s criminal sanctions regime for insider dealing and market manipulation. The reforms will be implemented as part of broader work to “repeal and replace” EU rules that were still in place post-Brexit, known as the Future Regulatory Framework (FRF) review. “As part of the FRF programme, the government intends to repeal the Market Abuse Regulation, the civil market abuse regime, and replace it with UK-specific legislation. We will set out a timetable for this in due course,” the statement said. Commenting on the move, Simon Morris, a financial services partner at the law firm CMS, said: “The EU has criminalised most serious market abuse while the UK lags with a 30-year-old regime no longer fit for purpose.”
City investor prepares for investment ‘big bang’
One of the City’s biggest investors is preparing for a post-Brexit investment “big bang.” FTSE 100 life insurer Phoenix Group has put together a team of analysts and specialists to examine what projects it can invest in once the UK relaxes EU-era rules in the insurance industry. Chancellor Jeremy Hunt last year confirmed that the Government will overhaul Solvency 2 rules which dictate how much cash insurers must hold on their balance sheets and where they can invest, with officials set to deliver what have been dubbed ‘Big Bang 2.0’ reforms. A Phoenix spokesman said it is working closely with the Bank of England’s Prudential Regulation Authority, industry peers and the Treasury “to ensure that Solvency 2 changes allow us to invest quickly and safely in the type of projects that will best serve society and support government ambitions to boost productivity, level up the country and support the transition to net zero.”
Windsor deal unlocks financial services cooperation
Talks between the UK and the EU on financial services cooperation may now be revived after latest Brexit deal was signed. A Memoranda of Understanding on financial services and on intellectual property was promised following talks between James Cleverly, the Foreign Secretary, and Maros Sefcovic, vice-president of the European Commission. Miles Celic, chief executive of TheCityUK, said: “This will be a vital step towards ensuring continued industry cooperation and continuity between the UK and EU.” Brussels has also agreed to look at easing trade barriers and Britain’s membership of the EU’s flagship science and research programme Horizon is now set to be revived.
Two Liontrust directors quit after boardroom clash
Two non-executive directors have left the FTSE 250 fund management group Liontrust following a boardroom spat. Emma Howard Boyd and Quintin Price both quit, according to the Times, over a dispute about governance, not pay. Some 46% of shareholders voted against the company’s remuneration policy last September, angered by a £6.01m award for CEO John Ions, who was also given a 58% increase in his base pay from £348,000 to £550,000.
SEC raised concerns over hedge fund Rokos after losing bond bets
The US Securities and Exchange Commission has raised concerns with UK regulators over UK-based Rokos Capital Management after the hedge fund was forced to pay out large sums to its banks to meet margin calls.
LEISURE & HOSPITALITY
Tui launches rights issue to repay German Covid aid
The state aid granted to Tui Group by the German government during the pandemic will be repaid by the travel group from a €1.8bn equity issue, the Times reports, noting that the German state will make a profit of more than €600m on the aid provided. CEO Sebastian Ebel said Tui would emerge with “a good balance sheet structure again” by reducing interest costs and creating a solid basis for the future.
MEDIA & ENTERTAINMENT
Microsoft's £56bn Activision Blizzard takeover moves closer
The UK’s Competition and Markets Authority (CMA) has provisionally dropped concerns that Microsoft's proposed takeover of Activision Blizzard would damage the UK console gaming market. Last month, the regulator warned the £56.7bn deal could result in higher prices, fewer choices or less innovation for UK gamers. However, it said its latest findings have now indicated the "transaction will not result in a substantial lessening of competition in relation to console gaming in the UK."
Elliott plans bid for parts of Cineworld
Activist investor Elliott Management is planning a takeover of parts of British cinema operator Cineworld Group. Elliott has tabled a bid to buy Cineworld's operations outside Britain and the United States. It is understood to have explored a bid for the whole of the group. Cineworld is currently under Chapter 11 bankruptcy protection.
RETAIL
Retail sales rose 1.2% in February
New figures published by the Office for National Statistics show retail sales volumes rose by 1.2% in February, the largest monthly growth since October last year. Non-food sales rose by 2.4% last month, boosted by discount department and clothing stores, while food sales rose 0.9% as cost of living pressures prompted shoppers to cut down on eating out. However, sales volumes fell in the three months to February compared with the previous three-month period and remain 3.5% lower than in February last year. "Looking at the latest retail sales figures you might be forgiven for wondering if Britain really is in the middle of a cost-of-living crisis," said Danni Hewson, head of financial analysis at AJ Bell. "But pop the hood and the reality is laid bare... people are hunting out bargains whether they're found in the sales aisles being well-stocked by department stores, or in charity shops or other second-hand emporiums."
Short-sellers turning on Ocado
New data shows that more than 6% of Ocado's stock is now out on loan – the highest level in almost five years – to hedge funds, which will make money if its share price falls. This puts it at the top of the Financial Conduct Authority's list of the 'most shorted' stocks in London and indicates that the boost the group received from the pandemic is over. The current short positions are still far below a peak reached in 2016 – when more than 21%t of Ocado's shares were on loan to hedge funds.
ECONOMY
IMF warns of increased financial stability risks
The head of the International Monetary Fund (IMF) has warned that the global economy faces increased financial stability risks amid turmoil in the banking industry. Kristalina Georgieva, managing director of the IMF, said: “The rapid transition from a prolonged period of low interest rates to much higher rates necessary to fight inflation inevitably generates stresses and vulnerabilities, as we have seen in recent developments in the banking sector.” This comes amid concern over the global banking industry following the failure of Silicon Valley Bank and UBS’ rescue of rival Credit Suisse. Ms Georgieva said policymakers have acted decisively in response to financial stability risks, adding that while actions by central banks “have eased market stresses to some extent … uncertainty is high and that underscores the need for vigilance.” Ms Georgieva also said that uncertainties in the world economy remained “exceptionally high”, adding that the outlook for the global economy over the medium-term is likely to “remain weak.”
Services sector drives private sector growth, manufacturing limps
Data compiled by S&P Global and the Chartered Institute of Procurement and Supply show the UK’s private sector continued to grow in March. The flash PMI fell to 52.2 from 53.1 in February but remained well above the 50 mark that separates growth from contraction. The growth was fuelled by the services sector, while manufacturing remained in contraction. New orders rose at their fastest pace since April last year but a lack of available staff meant that the demand could not be met in full.