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Daily News Roundup: Monday, 5th February 2024

Posted: 5th February 2024

BANKING

Bankers resist return of big bonuses

Bankers are unhappy at the prospect of the bonus cap being removed, fearing their salaries would be cut as a result, leaving regular outgoings such as school fees unaffordable. An executive at one major investment bank said management have resisted changing pay deals because of the level of disquiet among bankers. An insider at a rival bank said they were weighing their next move amid concern that whoever cut salaries first could find their staff being poached. Sam Woods, chief executive of the PRA, told MPs last year that the only effect of the bonus cap had been to “increase the fixed pay of bankers. As bankers come up close to the cap…in the following year, their base pay gets a boost of about 15%.” The Bank of England confirmed in October that Britain would scrap the cap as part of a post-Brexit overhaul and Labour said last week that it would not reinstate the restriction on bonuses.

Mid-sized challenger banks expected to consolidate in 2024

The consolidation of mid-sized challenger banks is expected to increase in 2024, with more lenders winding down, according to Cashplus CEO Rich Wagner. He noted that legacy banks are experiencing a "brain drain" as digital-only rivals attract top talent. The UK's mid-sized banking market is predicted to see a wave of consolidation due to higher interest rates and successful challengers having ample cash. Recent developments include Coventry Building Society entering talks to potentially acquire the Co-operative Bank, Sainsbury's closing its banking division, and Tesco Bank reportedly being up for sale. Wagner expects more consolidation in 2024 than in 2023, narrowing the valuation gap. Cashplus, which reported record revenues last year, plans a rebranding in the near future.

BBB to launch new fund to boost pension investment

A state fund that will invest hundreds of millions of pounds of pension fund assets in British growth companies is set to be launched within 18 months. The British Business Bank has indicated that the new “Growth Fund” could deploy about £600m a year of pension savings in fast-growing companies. The fund, which is expected to pool pension fund money to invest alongside established and new programmes run by the agency, is one of the responses to Jeremy Hunt’s Mansion House reforms. The bank is also encouraging proposals from pension funds to establish new private sector investment vehicles in which the Government would co-invest. The first two private sector partners for its “long-term investment for technology and science”, or Lifts scheme, could be announced in next month’s Budget.

Banks accused of profiting by not passing on higher interest rates

More than £1tn of UK savings is earning less than 2% interest, while the base interest rate is 5.25%, according to Bank of England savings data. This has led to criticism that UK banks are profiting at the expense of their customers by not passing on higher interest rates in full. The average interest rate on an easy-access savings account was 2.02% in December, much lower than the base rate, with £1.15tn earning less than this average. Banks have raised mortgage rates sharply since December 2021. The Financial Conduct Authority has called for continued improvement in savings rates and encouraged customers to shop around for better deals.

BoS settles out-of-court in unfair mortgages case

Bank of Scotland has reached an out-of-court settlement in a case involving "unfair" mortgages. The case involves a Bank of Scotland product called the shared appreciation mortgage (SAM), which has been accused of ruining lives by leaving some people owing 10 or 12 times the sum they originally borrowed. The settlement is cloaked in secrecy, with the bank and Teacher Stern, the law firm behind the action, only saying they had "agreed a commercial settlement, without any admission of liability".

Jeremy Hunt prepares PR for NatWest share sale

The Government has awarded a contract to the market research firm Walnut Unlimited to test the public's appetite for NatWest shares with a sale expected as soon as June. The Chancellor revealed in his Autumn Statement that he would explore options for selling its shares in the bank.

Iran used Lloyds and Santander accounts to evade sanctions

Accounts at Lloyds and Santander UK have been used by a Tehran-backed petrochemicals company to evade sanctions, the FT reports, helping Iranian intelligence pass cash to their proxy militias.  

PRIVATE EQUITY

Labour under pressure to water down proposed tax raid on private equity

Senior Labour figures are urging shadow chancellor Rachel Reeves to reconsider a tax hike on private equity profits amid concern the move would deter investment in the UK. The proposals, which aim to charge a 45p income tax on so-called ‘carried interest' payments, may be weakened to find a middle ground between the current 28p capital gains rate and the proposed 45p rate.

INTERNATIONAL

Aozora bank slumps to three-year low on US office losses

Shares in Japan's Aozora Bank slumped to a three-year low after announcing a 32.4bn yen loss provision against office US loans. The stock dropped more than 18% before steadying to close at 2,150 yen ($14.66). The provision came after New York Community Bancorp booked a big charge against its bad property-related loans, causing a tailspin in US regional banking stocks. Shoki Omori, chief Japan desk strategist at Mizuho Securities, said he expected Japanese investors in U.S. real estate investment trusts to pull out and shift to more conservative investments.

Mizuho reports 8.2% rise in Q3 profit

Mizuho Financial Group, Japan's third-largest lender, has reported an 8.2% increase in quarterly net profit. The profit of 226.57bn yen ($1.54bn) in the October-December period was driven by strong loan demand from companies and subdued loan-loss provisions.

SocGen to cut roughly 900 jobs in France

Société Générale, France's third-biggest listed bank, is set to cut about 900 jobs in its home country this year, targeting IT and support functions. The job cuts will be made through voluntary departures and represent less than 2% of the total French workforce. CEO Slawomir Krupa aims to cut costs to boost profits and has pledged to reduce expenses by about €1.7bn by 2026.

AUTOMOTIVE

JLR pays police to curb luxury car theft

Jaguar Land Rover is to pay police to conduct more stringent checks at ports to combat vehicle thefts. The funding is part of an overall £15m that the company is ploughing into security upgrades, marketing campaigns and intelligence sharing with insurers, after its Land Rover and Range Rover cars became some of the most-stolen in Britain. The problem has caused insurance premiums for the sought-after cars to shoot up, with some customers refused coverage.

FINANCIAL SERVICES

Brexit helps City of London retain financial services crown

A major new report by the Corporation of the City of London has revealed that London has maintained its position as the top global financial centre, thanks to the boost from Brexit. The report highlights how London has surpassed its main rival, New York, due to the freedom to deregulate and introduce lighter touch rules. The Policy Chairman of the City of London Corporation, Chris Hayward, said: “I am pleased to see London retain its crown as the leading global financial centre after tying with New York City last year, but our competitive edge must be revived. These report findings are a testament to the success of recent regulatory changes which have sparked business optimism by removing barriers to international talent and ease of doing business."

Kriya lands new finance facility to fund expansion

Kriya, a London fintech lender, has secured a new £50m finance facility to support its rapid international expansion. The firm, known as the Klarna of the B2B world, offers favourable payment terms to business customers, including deferred payments and cost splitting. The facility was agreed with Israeli private equity firm Viola and will enable Kriya to process over £1bn in payments over the next two years.

Royal London completes acquisition of Responsible Group

Royal London, the UK's largest life, pensions and investment mutual, has completed the acquisition of the Responsible Group, a group of later-life lending and products specialists. The acquisition allows Royal London to increase support for the Responsible Group and scale the provision of later-life lending in a growing market.

UK pension trustees raise alarm on transferring risks offshore

Trustees are starting to worry about the risks of overseas reinsurance firms buying out UK pension schemes – what happens if a reinsurer goes bust, and would the FSCS step in.  

LEISURE & HOSPITALITY

Jeremy Hunt tasks OBR with tourist tax review

The Chancellor has asked the Office for Budget Responsibility to review the decision to end tax-free shopping for tourists. The decision to end tax-free shopping for overseas visitors was made by Rishi Sunak in 2020 when he was Chancellor under Boris Johnson. Richard Hughes, chairman of the OBR, said the Government spending watchdog would publish its conclusions alongside the Budget next month. Hughes indicated that Treasury assumptions on the cost of restoring VAT-free shopping were too narrow and that a wider range of indicators would now be taken into account. The news comes after a report published last week estimated that the economy is missing out on an £11bn boost because of the tourist tax.

MANUFACTURING

Tories scrap boiler tax

The Energy Secretary is set to scrap the boiler tax, relieving the strain on household bills. Manufacturers faced fines for missing heat pump installation targets, which were designed to phase out gas boilers. The industry responded by increasing prices and passing the costs to consumers. Energy Secretary Claire Coutinho accused manufacturers of price gouging and held talks to demand changes. However, she is now preparing to scrap the targets and fines, believing that government intervention won't prevent additional costs. Coutinho is also concerned about the lack of competition in the market and has instructed officials to speak to the Competition and Markets Authority about launching an investigation into the home heating market.

RETAIL

Issa brother seeks to offload stake in debt-laden Asda

One of the billionaire Issa brothers, Zuber Issa, is looking to offload his stake in the debt-laden supermarket Asda. He has approached buyout specialists and retailers to explore a sale of his 22.5% shareholding in Asda, which he acquired three years ago. Zuber wants to focus on EG Group, the brothers' petrol station empire. He has expressed a preference for another investor to join TDR and his brother Mohsin for Asda's next phase, which may include a bid for Boots.

ECONOMY

BoE sending mixed messages

A day after the Bank of England governor, Andrew Bailey, said the next rate move is likely to be down the Bank’s chief economist Huw Pill has said the BoE may in fact raise rates, citing Middle East instability and the sustained pressure on inflation from wages, the jobs market and prices in the services industry. Gerard Lyons, a former economic advisor to Boris Johnson, said the Bank is sending mixed messages at a time when officials should be pivoting towards lower interest rates as inflation falls.

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