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Daily News Roundup: Monday, 28th February 2022

Posted: 28th February 2022

BANKING

Some Russian banks cut off from Swift

The US, UK, Europe and Canada have agreed to cut off a number of Russian banks from the main international payment system. Swift – the Society for Worldwide Interbank Financial Telecommunication - is a secure messaging system that makes fast, cross-border payments possible, enabling international trade. The system facilitates transactions between more than 11,000 banks and financial institutions across the globe. While the Russian banks affected have not been named, a spokesman said they would include "all those already sanctioned by the international community, as well as other institutions, if necessary". Officials have also announced that the assets of Russia's central bank will be frozen, limiting Russia's ability to access its overseas reserves. Ursula von der Leyen, president of the European Commission, said the decision to paralyse the assets of Russia's central bank would stop the Kremlin from "using its war chest".

APPG says bank ‘unfairly' hiked mortgage rates

The All-Party Parliamentary Group (APPG) on Mortgage Prisoners has accused Co-Operative Bank of treating customers “unfairly”, saying rate rises through Mortgage Agency Services Number Five (MAS5), one of its agency subsidiaries, “were not in line” with the terms and conditions of customers’ mortgages. The MPs said the bank “is still relying on ... unfair rate increases” to charge some customers “a very high” standard variable rate. The APPG, in a letter to the Co-Operative Bank, said it has also received “very disturbing reports” of how MAS5 and the Co-operative Bank are treating vulnerable customers. The APPG asked the bank to “immediately halt” all threats of repossession to MAS5 customers paying the standard variable rate, which rose from 2.99% to 5.75% between June 2009 and May 2012 – and also requested the bank cut rate by 2.76 percentage points “to reflect the impact of the unfair interest rate increases”.

High street bank opening hours dwindle

Analysis by the Sunday Telegraph reveals high street banks are now open for just four hours a week in some parts of the country. The paper analysed more than 4,000 high street banks, including Barclays, Nationwide, RBS, HSBC and NatWest among others. It did not include Santander. The research found that, on average, bank branches are open for just 34 hours a week before lunchtime closing hours are included. However, rural communities can expect an average of just 29.5 hours. In south Cambridgeshire, banks are open for an average of just 15 hours a week, or 2.5 hours a day.

Banks limit mortgage sizes amid rising costs

Banks are limiting how much buyers can borrow when they take out a mortgage because of rate rises and the increasing cost of living. Barclays and TSB have revised their affordability calculators, which help to work out what borrowers can afford to pay in mortgage costs each month, and Santander will follow suit this week. "We can expect more lenders to take living costs into consideration, especially when the energy price cap is removed in April," said Chris Sykes from mortgage broker Private Finance, adding: "This means we can expect tighter affordability for some and lower loan amounts."

INTERNATIONAL

SEC investigating Goldman Sachs over employee communications

The US Securities and Exchange Commission is investigating Goldman Sachs over employees using communication channels not approved by the company. An inquiry launched in October has been looking into how Wall Street banks and other large financial firms are keeping track of employees' digital communications. In December, regulators fined JPMorgan Securities $200m for "widespread" failures to preserve staff communications on personal mobile devices, messaging apps and emails.

SEC proposes new short selling disclosure rule

A new rule proposed by the US Securities and Exchange Commission would force hedge funds and other investors to share more information about their short selling with regulators and the public.

CONSTRUCTION

Overhaul of construction industry needed to reach net zero

Ljubomir Jankovic, professor of advanced building design at the University of Hertfordshire, suggests a radical overhaul of the construction industry is needed to reach net zero goals. Research by his team shows that due to embodied carbon emissions, only building all new housing using naturally grown materials with negative embodied carbon will allow the UK housing industry to be net zero by 2050. In addition to drastically ramping up the energy efficiency requirements for new builds, we should also urgently develop regulations for retrofitting existing houses, he argues, adding that detailed modelling of buildings will also be required.

FINANCIAL SERVICES

Scrapping EU’s Solvency II regulation will free up insurers’ investment cash

City minister John Glen says UK life insurers will be freed up to invest “tens of billions” of pounds more after the decision to scrap the EU’s Solvency II regulation post-Brexit. He said changes to the EU regulation will unleash investment by reducing the amount of capital that insurance firms must hold in reserve by up to 70%. Mr Glen also said there will be a “reassessment of how insurers allow for the risks they are exposed to from their investments” and a “major cut in the red tape and administrative burdens on insurers”. Bank of England governor Andrew Bailey has previously said Solvency II was “never well suited” to the UK’s insurance industry, describing it as needlessly “cumbersome”.

Ukraine invasion chills investors

The Sunday Times says large parts of the City have ground to a standstill as investors and banks monitor Russia's invasion of Ukraine and the widening spread of sanctions. British companies and the fund managers investing in them have been facing questions over links to the Kremlin and Russian oligarchs. Bankers said the bond market had largely dried up, with one saying not a single major bond issue had been done since the Russian invasion last week. Plans for stock market flotations have also been put on hold pending more clarity on the outcome of the crisis.

Just sells LTM portfolio to Rothesay Life

Specialist financial services group Just has sold a portfolio of lifetime mortgages (LTMs) to insurance company Rothesay Life for a consideration of £687m, to be paid all in cash. The assets form part of an investment used to support Just’s insurance liabilities, according to the group, and proceeds will be reinvested in a range of fixed interest assets to further back its liabilities. The outstanding loan balance of the mortgages stands at £537m and have an IFRS value of £772m. The LTM portfolio is the third that Just has sold over the last fifteen months. 

MEDIA & ENTERTAINMENT

Games chiefs call for more investment to avert foreign buyouts

Analysis shows that deals for UK-based video game makers rose 63% last year, hitting £1.9bn as overseas companies snapped up a number of British studios.

REAL ESTATE

Homeowners could see property prices plummet as cost of living mounts

House prices could fall by a tenth next year as rapid inflation and the cost of living crisis deflate the property market boom. Karl Thompson, of the Centre for Economics and Business Research, believes house prices will fall 1.5% every three months after the summer, and then by 1% year-on-year in 2023. Paul Cheshire, professor at the London School of Economics, said: "In a rational world, you would see a significant house price correction within six months to a year from now. That would be a fall in real prices of about 10%." He added: "The people who are at risk are those who paid too much for their homes in order to meet the stamp duty deadline. Also, first-time buyers who stretched themselves to buy will be affected. They will be hit as real incomes fall and interest rates rise." Analysis from Capital Economics forecasts that the Bank Rate will rise to 2% towards the end of 2023 and that the average mortgage rate on new lending will jump from 2.4% today to 3.2%.

Property market transactions set to hit pre-pandemic levels

Rightmove says it expects transaction levels in the UK property market to hit pre-pandemic levels this year “as the market normalises.” Rightmove analysis shows that asking prices rose 9.5% in February compared to last year, with this the highest annual rate of growth since September 2014. Month-on-month, asking prices are up 2.3% to a record of £348,804.

RETAIL

Ministers consult on plans for digital tax to cut business rates

Ministers are seeking retail industry insight on a possible online sales tax that could deliver a reduction in business rates, Lucy Frazer, financial secretary to the Treasury, has revealed. She said that as officials want to see “thriving high streets and a fair economy”, ministers are “committed to look at an Online Sales Tax – given the imbalance identified by some between online and in-store retailers.” She added: “Whilst we've made no decision on whether to introduce such a tax, it's right that, given the growing consumer trend to shop online, we work with stakeholders to assess the appropriate taxation of the retail sector.” The consultation will last for three months and ask businesses to identify the products and services that would be involved.

UK high streets bounce back from Covid curbs as London falters

FT analysis shows that around three-quarters of local council areas are seeing higher high street sales than before the Covid pandemic.

ECONOMY

Energy price hike could hit real incomes

With concern that the Russian invasion of Ukraine could push up global energy prices, UK households may see the biggest annual fall in real incomes since the 1950s. Analysts at Bank of America said a sustained rise for wholesale oil and gas markets could see household real income fall by 3.1% in 2022 compared with a year earlier. This would mark the biggest annual drop since 1956. Increases in petrol and diesel prices last week came at a time when inflation is already at the highest level since 1992, having reached 5.5% in January. Robert Wood, UK economist at Bank of America, noted that there is “a lot of volatility”, warning: “We’re looking at this year a very large reduction in households spending power compared with previous years. How the economy navigates through that is quite uncertain.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, calculates that sustained elevated prices for oil and gas will heap an additional 1.5 percentage points on to the cost of living, resulting in a 2.2% erosion in real disposable income this year. Meanwhile, Torsten Bell, chief executive of the Resolution Foundation think-tank, commented: “In time the conflict will … broaden and deepen the living standards squeeze here at home.” He added: “The chances of low- and middle-income households getting some respite from the growing squeeze on living standards later this year are receding rapidly.”

Ukraine crisis set to drive inflation higher still

Economists believe Russia’s invasion of Ukraine will deliver a steeper rise in inflation, pointing to Russia’s position as the world’s biggest natural gas exporter and second-largest for oil. Michael Strobaek, global chief investment officer at Credit Suisse, said the impact of the Russian invasion marks the “dawn of a new world order” for the international economy, saying higher inflation and financial market volatility can be expected. He warned that Russia’s invasion of Ukraine “marks nothing less than a shift away from the largely US/western-dominated world order that has prevailed since the fall of the Berlin Wall.” Noting that Russia and Ukraine are major exporters of not just oil and gas, but also food, Karen Ward, chief market strategist at JPMorgan Asset Management, has warned the economic fallout from the conflict could result in inflation reaching 8%. Pantheon Economics says the outlook for the UK economy had "darkened" following Russia's invasion and has raised its inflation forecast to 8.2% in April, from a previous estimate of 7.7%. Elsewhere, Investec has warned household energy bills could exceed £3,000 a year in part due to the conflict.

OTHER

Cashless move may require regulation

James Moore in the Independent looks at regulation governing access to cash. Highlighting that the Financial Conduct Authority and the Payment Systems Regulator publish data on the matter every three months, he notes that the latest report shows that 95.5% of the UK population is currently within 2km of one of a cash access point, with 99.7% within 5km. Mr Moore says that while 5km is quite a distance for an elderly or disabled person to manage in an area with limited public transport, issues around people’s ability to use cash once they have it “has been much less widely discussed.” Voicing concern over an increase in card-only services, he notes UK Finance analysis showing a 35% decline in the use of cash in 2020, the most recent year for which data is available, and suggests that as a decline in the use of cash continues, “the number of businesses going cashless will inevitably rise.” Mr Moore suggests that regulators monitoring access to cash has “played an important role in preserving it” and argues that it is “clearly now time to look at the decline in the number of businesses that allow customers to pay in cash.” “This could also be subject to monitoring, publicity, creative solutions and possibly political or regulatory intervention,” he concludes.

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