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Daily News Roundup: Monday, 2nd August 2021

Posted: 2nd August 2021

BANKING

Bankers’ bonus cap may be scrapped

The Times’ Katherine Griffiths reports that the Government is considering removing restrictions on bankers’ bonuses as it looks to move away from EU rules and make the City more competitive. She says that while Treasury officials believe the move could make the UK more attractive for senior bankers, the idea has not yet been part of public consultations over fears it could trigger a public backlash. The EU clamped down on bankers’ pay in 2014, setting bonuses at a maximum of two times salary in the wake of the financial crisis and subsequent banking bailouts. Ms Griffiths notes that Chancellor Rishi Sunak last month unveiled a “roadmap” designed to make the UK’s financial sector “the most trusted and competitive place to do business”. She says he “dipped a toe” into controversial territory by confirming a review of the banks’ surcharge tax, an 8% levy on their profits, while officials and banking bosses are expected to turn their attention to the bonus cap. Suggesting that the Treasury may want backing from the Bank of England, Ms Griffiths notes that the Bank’s governor, Andrew Bailey, has previously said the cap increased banks’ risk as it forced more capital into fixed payouts and removed managers’ flexibility. In 2014, it is noted, Mr Bailey said the bonus cap “is the wrong policy”.

NatWest resumes pay-outs after it returns to profit

NatWest is to resume pay-outs to shareholders after bouncing back into profit. The bank saw pre-tax profit of £1.6bn in the three months to the end of June, rebounding from a £1.3bn loss in the same period last year. The Q2 figure takes pre-tax profit for the first half to £2.5bn, compared to a £707mn loss in 2020, with the surge driven by the lender releasing £705m from its impairment pot. Net lending rose by £2.2bn to £362.7bn in the first half of the year, while customer deposits increased by £35.5bn to £467.2bn. The return to profit means NatWest will resume investor payouts, with dividends worth £347m set to be handed out. It will also hand the Government, which bailed it out during the 2008 financial crisis, around £190m and buy back £750m of its own shares in H2. Alison Rose, NatWest’s chief executive, said the results were driven by "good operating performances across the group, underpinned by a robust loan book and a strong capital position.”

Monzo reports losses and FCA probe

Monzo reported a pre-tax loss for the year to February of £130m, an increase from £114m the previous year. Revenue increased 18% to £79m. The bank said it attracted 1m new customers in the financial year, taking its total to 5m. For the second year running, its auditors warned that continuing losses cast uncertainty over its ability to continue as a going concern. It also revealed that the Financial Conduct Authority (FCA) has launched a money-laundering investigation into the digital bank. Monzo said that the FCA, which last year ordered it to appoint a skilled person to review its financial crime controls, informed it in May that it had begun an investigation into the bank’s compliance with money laundering regulations, focusing on the period between October 1, 2018 and April 30 of this year.

Small bank boost as BoE mulls rule rethink

Small banks could be given a boost under Bank of England plans to relax rules, with the Bank writing to eleven banks to reveal it considering scrapping a rule that requires banks with at least 40,000 current accounts to raise extra capital. The Bank wrote that there may be scope to “significantly raise or even remove the indicative transactions accounts threshold”. The safety net was designed to protect taxpayers from footing the bill if issues arose but small banks including TSB and Metro have voiced concern that the rules make it harder for them to grow.

Prestedge exits leaves Santander with leadership crisis

The Mail on Sunday’s Emma Dunkley says Santander has been “plunged into a leadership crisis” after the departure of Tony Prestedge. Sources say Mr Prestedge, who joined Santander last September in the senior position of deputy chief executive, had taken on the role in the understanding that he would succeed CEO Nathan Bostock, who is set to stand down this year.

Virgin Money reduces top team

A restructuring at Virgin Money will see the departure of several senior bankers. Gavin Opperman, director of business banking, is set to leave in March, with the roles of chief customer experience officer and chief commercial officer replacing his position. Lucy Dimes will be departing as the bank's chief strategy and transformation officer, while Kate Guthrie, head of people, will also exit the lender.

Is AI set to transform the banking industry?

Shameek Kundu, Head of Financial Services at TruEra, discusses whether AI is set to transform the banking industry. Kundu notes that in most banks, neither the 2020 budget restrictions nor the failure of some AI systems during the pandemic appear to have slowed down AI-related recruitment or technology spending. He adds that AI is seen as a critical part of incumbent banks’ response to threats from technology-focused challengers. However, without urgent action to enhance its trustworthiness, much of the industry faces its own "AI winter".

Lenders battle to meet mortgage demand

The FT reflects on how banks and building societies are coping with robust demand for mortgages, saying tight competition presents a challenge for lenders but will benefit consumers.

Pandemic drives remote working revolution

Louise Eccles and Sabah Meddings in the Sunday Times reflect on the impact the pandemic has had on working patterns, saying it has prompted a revolution that will see a model where staff spend three days in the office and two at home become the norm for many workers. They note that NatWest expects almost nine in ten staff to work from home, with 32% in a “remote-first” role, 55% “hybrid” and 13% in the “office-first” category.

Rolet: Bankers have little grounds for complaint

Xavier Rolet, the former boss of the London Stock Exchange, says “entitled” junior bankers have no right to complain about long working hours in a sector where starting salaries exceed £70,000, offering that “that's the business”. Pointing to complaints from junior bankers at Goldman Sachs in the US who spoke up over work conditions that involved sleep deprivation, 100-hour weeks, and workplace abuse, Mr Rolet said: “The investment banks with this kind of problem should try hiring poor hungry kids who managed to put themselves through college instead of entitled graduates.” Noting that jobs in global trading or mergers and acquisitions do involve “lots of pressure, inflexible deadlines”, he mused: “That's the name of the game”.

INTERNATIONAL

EU banks in strong stress test showing

Banks in the European Union banks moved closer to being able to pay dividends again after an overall strong performance in European Banking Authority (EBA) stress tests. EU banks took a €265bn hit in a test of their resilience to economic shocks, leaving them with two-thirds of their buffers intact. The EBA tested the resilience of 50 top lenders to economic shocks, with these accounting for 70% of EU banking assets. EBA chairman José Manuel Campa, said: “The resilience of the sector is high across all countries, but we do see a bigger effect on those banks that have a higher reliance on credit portfolios.”

Unicredit profit rises

UniCredit has reported a 16.5% rise in profits, hitting €1.1bn in Q2, with fees rising 21.4% compared to Q2 2020. First-half operating costs fell 1.2%. The bank has confirmed that it is talks with the Italian government over the acquisition of Monte dei Paschi di Siena. Chief executive Andrea Orcel said the deal would allow significant cost cuts and boost UniCredit's market position.

Malaysia takes aim at Binance chief executive as global crackdown escalates

Malaysia has censured Binance chief executive Changpeng Zhao for “illegal” operations, with its securities watchdog launching enforcement action against the cryptocurrency exchange’s holding company and ordering it to disable its main exchange.

Saudi lender sees 48% rise in Q2 income

Al Rajhi Bank, Saudi Arabia's second-biggest lender, has seen a 48% jump in quarterly profit, with a net profit of $959.92m for the three months to June 30. The Islamic lender said income from special commissions, financing and investments rose 27% from a year earlier.

Mastercard submits new audit in India

Mastercard has submitted a new audit report to India's central bank as it seeks to overturn a ban on card issuance linked to concerns over its handling of data processed abroad. The Reserve Bank of India imposed the ban after deciding a "system audit report" submitted by Mastercard's auditor in April was unsatisfactory.

FINANCIAL SERVICES

City of London grapples with wave of post-Brexit regulation

Executives in the finance sector are experiencing increased workloads amid a wave of consultations designed to reform rules governing the sector, with officials hoping new regulation will make the City more attractive post-Brexit.

Big investors demand annual vote on companies’ net zero plans

Large investors including JPMorgan Asset Management and M&G have called on firms to publish their climate change strategies, make a board director responsible for the plans and give shareholders a vote on them.

UK pension funds warn diversity will count when choosing asset managers

A group of pension funds and investment consultants have signed up to a charter committing them to considering factors such as gender and ethnicity diversity when deciding which fund managers win contracts.

MANUFACTURING

Administrators seek buyer for engineering firm

Customers of struggling engineering business Cleveland Bridge are reportedly approaching rivals including Severfield to sound them out about taking over contracts. Cleveland, which built Wembley Stadium’s arch and Sydney Harbour Bridge, fell into administration 10 days ago after its Saudi Arabian owner, Al-Rushaid Group, withdrew its support. Administrators have been seeking a buyer after the deadline for expressions of interest closed last week.

MEDIA & ENTERTAINMENT

Film and TV studios planned in Hertfordshire

A Hollywood studio has announced plans for a £700m film and TV studio facility in the UK. Hudson Pacific Properties, the owners of Sunset Studios in Los Angeles, and investment firm Blackstone have bought a 91-acre site in Hertfordshire for £120m. Subject to planning permission, the production centre would be built in Broxbourne.

REAL ESTATE

Best year for house sales since financial crisis

UK property sales are heading for their best year since before the financial crisis, according to mortgage broker John Charcol. The number of homes bought and sold is set to reach 1.4m this year - the highest number since 2007. A monthly record was smashed in June as sellers took advantage of the stamp duty holiday. Ray Boulger, a senior manager at John Charcol, said the bounceback in the housing market this year has been so strong that there were more than double the number of transactions in the first half of last year.

Eight postcodes see house price rises exceed £100k

Analysis shows that eight UK postcodes have seen average house prices climb by more than £100,000 in just one year. Of these, three are in Cornwall and two are in Devon, while the other three are in Suffolk, Renfrewshire and Somerset. Leading the way is North Cornwall’s PL27 postcode, where the typical price of a home has climbed from £342,903 to £478,031 over the past 12 months – an increase of over 135,000. Analysis from Nationwide shows that the average house price in the UK stood at £244,229 in July, having risen 1.6% in Q2.

Remortgaging used to invest in more property

Homeowners have cashed in on house price growth by freeing up money when remortgaging to buy another property. The proportion of borrowers releasing equity from their homes when remortgaging has increased in the last year, according to UK Finance. Borrowers took out extra money in 57% of remortgage cases in March. And a common reason for withdrawing a sizeable sum had been to purchase another home, a UK Finance spokesman said.

RETAIL

CMA will not probe Morrisons takeover

The Competition and Markets Authority (CMA) will not intervene if shareholders vote through private equity-led consortium Fortress’ £6.3bn takeover of Morrisons. Investors holding a combined 22% share of Morrisons have questioned the merits of the mooted deal. Legal & General, the eighth-largest investor in the supermarket chain, has warned it should not be taken private for the “wrong reasons”, while Silchester, the group's largest shareholder, said there is “little in the offer that could not be achieved by Morrisons as a listed company”. The consortium must win the support of 75% of shareholders to take control of the supermarket.

ECONOMY

BoE set to stick with QE despite inflation fears

The Bank of England is set to keep pumping money into the economy despite fears over rising inflation, Tom Harmsworth in the Mail reports. While the UK economy is on course to expand by 7% this year, inflation is climbing, hitting 2.5% in June and forecast to go further beyond the Bank’s 2% target, with some analysts saying it could climb to 4% later in the year. Mr Harmsworth says the rise has put the Bank’s quantitative easing (QE) programme in the spotlight, with its Monetary Policy Committee (MPC) “increasingly at odds over what to do next”. The debate, he suggests, “is a tricky one”, as pulling support too quickly could hurt the post-pandemic economic recovery. Despite concerns being voiced by some members, analysts expect the MPC to continue with the current policy until QE reaches £895bn in December.

Eurozone out of recession as economy grows 2%

The economy across the eurozone grew by 2% in the second quarter of the year, taking the region out of recession. The 19-nation single currency bloc had suffered a double-dip recession, with the economy contracting 0.6% in Q4 2020 and 0.3% in Q1 2021, but all national economies which reported data in Q2 saw growth. Figures from the EU’s statistical agency, Eurostat, showed the eurozone growing at an annual rate of 13.7% in the April to June period. Despite coming out of recession in the most recent quarter, the eurozone economy remains 3% down on its pre-pandemic level.

OTHER

Private sector optimism dips - Lloyds

A survey by Lloyds Banking Group shows that while firms are stepping up recruitment plans and increasing wages, optimism in the private sector has peaked. Its monthly business barometer found that hiring intentions climbed for a sixth consecutive month, hitting the highest level since November 2018. It was also found that 27% of respondents expect pay growth of 2%, compared with 24% last month. However, of the 1,200 companies polled, the proportion of those feeling confident was 30% higher than those who were pessimistic – with this a decline on the 33% recorded previously. Optimism in the economic outlook fell from 36% to 32%.

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