BANKING
PRA needlessly pushing up bank capital requirements
Proposed changes to capital requirement regulations under the so-called Basel 3.1 banking rules could mean Barclays and NatWest have to set aside an additional £34bn and £18bn on their respective balance sheets. The disclosure comes after the Bank of England’s Prudential Regulation Authority (PRA) told lenders they would need to adhere to the rules, despite the EU loosening its own regulations. Simon Morris, a partner at City law firm CMS, questioned the PRA’s logic considering it has repeatedly stated that UK banks are already strongly capitalised and “has a record of deviating from EU norms to meet UK requirements without compromising prudential standards.” He added: “It would be strange for it to reverse this stance especially when the Government is calling for enhanced UK financial competitiveness.” Smaller banks are concerned they will be hit harder than their larger peers, with one City banking boss saying he believes the changes will lead to a 1% increase to the cost of small business lending.
Nationwide bans credit card payments to crypto exchanges
Nationwide introduced a ban on credit card purchases of cryptocurrency assets last week, citing concerns from the Financial Conduct Authority (FCA) over possible risks to consumers. The building society also introduced a daily limit on debit card payments to crypto assets of £5,000 per day. The move follows similar restrictions imposed by HSBC, Santander, NatWest and Lloyds. Charles Kerrigan, a crypto and digital assets partner with law firm CMS, said the banks have been motivated by new consumer duty regulation requiring lenders to protect customers from making poor decisions.
Banks told to pass on rate hikes or risk a windfall tax
Some experts are calling for banks to be subject to a windfall tax if they continue to hold back on passing on interest rate rises to deposit holders. Critics of the idea say such a move would cause more harm than good, putting off investment in a sector that already faces high taxes. Alesandro Hatami, co-author of Reinventing Banking and Finance, suggested that instead of a windfall tax, new rules could require banks to transfer advantageous changes in the base rate to savings customers within a specified time frame. But the chair of the Treasury Committee Harriet Baldwin said: “It is difficult to avoid the conclusion that our biggest banks are taking advantage of their most loyal customers to increase profits and CEO pay.”
Banks push back against mandatory refunds for scam victims
Lenders are resisting new rules that would require banks and building societies to pay back in full victims of authorised push payment (APP) fraud, where the loss is over £100. Industry body UK Finance says automatically refunding victims “removes the incentive for customers to take sensible steps to reduce the risk of being defrauded.” But the organisation was accused of “victim blaming” by consumer group Which?, whose policy and advocacy director, Rocio Concha, demanded the Government and Payment Systems Regulator “quickly implement a system that sees the vast majority of APP fraud victims get their money back.”
Central bank interventions “cannot come at any cost”
Andrew Hauser, the Bank of England's executive director for markets, has warned central banks that emergency bailouts for struggling parts of the financial system "cannot come at any cost" and called for greater reform and scrutiny of the so-called shadow banking sector to prevent the need for constant firefighting by authorities. Separately, the House of Lords’ economic affairs committee has launched an inquiry into the Bank of England, whether the central bank is being held accountable for its actions, how its independence operates and whether it is appropriately governed.
Co-op predicts consolidation in the mid-tier sector
The Co-operative Bank could be among the small banks targeted for takeover as rising interest rates boost profits and spark a spate of mergers, the lender’s boss Nick Slape has said. Although there had been no sign as yet of the Co-op becoming a target, Slape said if “the bank is progressing and performance is better, somebody might want to look at us.” His comments came after the bank reported more than quadrupling profit in 2022 to £132.6m, from £31.1m a year earlier.
Investor slashes $5bn off Revolut valuation
US investor Triplepoint Venture Growth has downgraded its internal valuation of its Revolut shares by 15%. The markdown implies a valuation of $28bn, down from $33bn the company was valued at in the summer of 2021. The move comes after Revolut’s auditor issued a qualified opinion on its long-delayed 2021 accounts.
INTERNATIONAL
Former top Credit Suisse shareholder Harris Associates sells out of bank
US investment manager Harris Associates has sold its entire stake in Credit Suisse - it owned 10% last year – pointing to persistent losses, an exodus of clients and doubts over the Swiss bank’s restructuring.
AUTOMOTIVE
Germany and Italy stall EU ban on combustion engines
EU diplomats have been forced to delay a key vote on proposals to ban new petrol and diesel cars from 2035 following a last-minute revolt by Italy and Germany. The two countries are demanding exemptions for cars that run on synthetic fuels, which would mean carmakers could continue to sell engine-powered cars running on clean fuels for decades to come.
FINANCIAL SERVICES
LME faces prospect of fines over nickel market chaos
The Financial Conduct Authority has launched a probe into the London Metal Exchange over its decision to halt nickel trading following a spike in prices last year, raising the prospect of hefty fines and censure. However, lawyers have pointed out that the remit of the investigation – covering the conduct, systems and controls of the LME, up until the time trading was suspended – may indicate the regulator does not intend to look at the decision, made four hours later, to cancel deals that took place during the market turmoil. US hedge fund Elliott Associates and Jane Street Global Trading are suing the exchange for $456m and $15.3m, respectively for the cancelled nickel trades. Separately, the Bank of England has confirmed plans to name an independent monitor for the LME following its own review of LME Clear, the exchange’s clearing house. The review revealed “several shortcomings across LME Clear’s governance, management and risk management capabilities”.
FCA blamed for Arm’s decision to shun London listing
SoftBank’s decision to list Cambridge-based semiconductor company Arm in the New York rather than London has been blamed on an unwillingness on the part of the Financial Conduct Authority to loosen its rules. The Times considers the reasons other than regulation why companies are choosing not to list in London, such as the higher valuations put on US-listed companies and the more generous attitude to executive reward. But investment veteran Sir Keith Skeoch also points to a long term decline in various ecosystems in the UK, be they manufacturing or servicing, while political and regulatory uncertainty have also played a part in dissuading companies from listing in London. Securities experts also tell the paper that, aside from onerous prospectus and listing rules, “corporate governance rules and their interpretation by powerful proxy voting agencies can tip the balance against London.”
UK will 'go further' with financial deregulation if required
The City minister Andrew Griffith has promised that if more deregulation is needed to preserve the City as an investment destination then that will be forthcoming. Changes in the upcoming Financial Services and Markets Bill will boost the capital Mr Griffith said. “It grants us the power to quickly and effectively repeal and replace burdensome pages of European Union laws, and establishes a broader regulatory framework that is smarter, agile, and [proportionate] to the risks posed." He added that the Government is already reforming the UK's prospectus regime and forcing regulators to drive international competitiveness. Ministers are also reforming pension rules known so fund managers can divert more money into infrastructure. But Mr Griffith added: "If we need to go further, then we will.”
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LEISURE & HOSPITALITY
Gousto accused of betraying long-standing investors
Food delivery service Gousto has caused a row with investors after excluding those holding less than 10% of its shares from a heavily discounted fundraise which slashed its valuation. Several smaller shareholders, who had backed the company from the start, have since lodged complaints with the company's board, chaired by Katherine Garrett-Cox who was hired in 2021 to bolster the company’s corporate governance standards ahead of an IPO.
MANUFACTURING
US subsidies could trigger exodus of chipmakers from UK
Several British chip manufacturers have travelled to the US to hold talks on shifting production to the US after President Joe Biden's administration opened applications for billions of dollars of federal subsidies. Scott White, the chief executive of Cambridge-based Pragmatic Semiconductor, was part of a delegation that also included IQE, Paragraf, Graphcore, Salience Labs and Clas-Sic. Members of the delegation met White House and Congressional staff including officials implementing Joe Biden’s Chips and Science Act, a $52.7bn effort to return microchip manufacturing to the US and reduce dependence on Taiwan. Mr White said: “If we can go anywhere else in the world and get support for the capital investment of installing manufacturing facilities, then it's obviously relatively speaking far less attractive to do it in the UK.” Tim Pullen, the CFO at IQE, warned: “The UK is woefully in danger of being left behind if it does not move fast to put together a meaningful strategy, and fast.”
UK engineer IMI diversifies supply chain away from China
Increasing geopolitical tensions have prompted IMI to diversify its supply chain away from China with the UK engineering business now restricting its manufacturing in China for the domestic market there.
MEDIA & ENTERTAINMENT
Zoom fires president "without cause"
Video conferencing platform Zoom has sacked its president, Greg Tomb, "without cause", according to the company in a regulatory filing. The former Google executive had assumed the position in June 2022 and had participated in earnings calls as well as overseeing the company’s sales. A Zoom spokesperson stated that the company is not looking for a replacement.
REAL ESTATE
Rise in first-time buyers who will be paying off mortgage in retirement
New figures show that 17% of all new mortgages taken out in December were for terms of 35 years or more, almost double last February's rate, when it was just 9% of home loans. Overall, around 55% of mortgage loans are now taken out for terms of 30 years or more, compared with just 9% in 2005. According to Halifax, the average age of a first-time buyer is now 32 and even older in London, meaning that many borrowers are now on course to still be paying off their home loans in their sixties or even seventies.
Nearly 200,000 mortgage 'prisoners'
A report by the London School of Economics and Political Science says that nearly 200,000 mortgage "prisoners" trapped on interest rates of up to 8.29% should be offered interest-free loans to set them free. The report calculated that the Government made £2.4bn profit from selling the mortgages on to lenders that are not regulated to offer borrowers new deals. Its report now proposed a package of support for struggling borrowers that would cost Whitehall up to £347m over ten years. These proposals include providing equity loans that would be interest-free for five years, to help borrowers reduce the size of their mortgage debt and qualify for a cheaper rate with a new lender. MoneySavingExpert founder Martin Lewis, who funded the research, called on ministers to act "with speed".
RETAIL
Lloyds Pharmacy puts entire store base under review
The private equity owner of high street chemist Lloyds Pharmacy has launched a “strategic review of its entire UK store base” putting all of its 1,300 sites at risk of closure. The chain, which is owned by Aurelius Group, revealed earlier this year that it would close 237 of its sites which operate within Sainsbury’s branches. Last year the chain closed over 76 stores.
GAM among suiters for $10bn Subway
Goldman Sachs Asset Management is among the suitors for the sandwich chain Subway. Bain Capital, TPG and TDR Capital are among the other bidders. The business last month said it was exploring a possible sale due to soaring costs and increased competition. A sale could value the business at $10bn or more. Bankers at JP Morgan are overseeing the process.
ECONOMY
Gilt yields rising at highest level since mini-Budget
Debt servicing costs are likely to remain high for households, businesses and the Government for some time to come as demand for UK debt subsides. This is partly because the Bank of England is selling gilts back into the market, bloating supply, but also because overseas buyers are pulling out of the UK, partly because yields have risen in other places which have become more attractive investment opportunities, and UK pension schemes improved their funding positions dramatically in the fourth quarter last year so face no pressing need to buy large amounts of bonds. NatWest forecasts 10-year yields could come close to the 4.498% they reached at the height of the gilts crisis last autumn.
Services sector bounced back to growth in February
The S&P Global/CIPS UK services PMI survey indicates the UK’s service sector bounced back to growth in February. The survey showed a reading of 53.5 for the month, up from 48.7 in January and slightly ahead of market expectations. Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said: “UK service providers moved back into expansion mode in February as fading recession fears and improving business confidence resulted in the strongest rise in new orders since May 2022. However, elevated borrowing costs and stretched household finances remained constraints on growth.”
OTHER
UK software company mulls New York listing
Sheffield-based software firm WANdisco is reportedly working with bankers at Evercore Partners to look at a dual listing in New York. WANdisco's decision to review its listing is contributing to fears of a British exodus from London to the US.