BoE’s move to control inflation toughens outlook for companies
BTG Advisory’s Mark Fry explains how, given the majority vote by members of the Bank of England’s Monetary Policy Committee to increase the base rate by 0.25% to 0.5%, the stage is set for further hikes before the year end. The MPC voted five to four for the hike, with the members in the minority preferring an increase of 0.5 percentage points, to 0.75%. Fry says: “The voting distribution underscores the central bank’s hawkish tilt towards taming inflation, which is expected to climb higher in the coming months.” He adds that the “tightened financial conditions amid rising inflation and decelerating growth will weigh on the outlook for UK company insolvencies”. But as we work our way through 2022, “companies will have to readapt to self-sustainability in order to survive.”
Rate rethink boosts big banks
George Nixon in the Times says that interest rate rises are “great news” for big banks as it means that they can charge more for lending, but warns that challengers like Monzo and Starling are still struggling to make big gains. He says that the average UK adult has two current accounts – a main account with Barclays, Lloyds, HSBC or RBS – and a second account with an app-based challenger. Financial Conduct Authority research shows that only one in four challenger bank accounts is used as a main account. Mr Nixon says the fact big banks still hold most current accounts “is a crucial part of their advantage over their competitors”. He goes on to say that the “banking dinosaurs” have caught up in the technological areas that the digital banks used to dominate, as well as copying the challengers’ best features, including the range of services apps can offer. Mr Nixon also notes that big banks have closed branches and invested in automated IT systems, creating more efficient models and cutting the cost of running branches from 22.5% of overall operating costs in 2017 to 15% in 2021.
Interest rate rises will lock 1 in 10 out of housing market
The Bank of England’s recent rate rises will deny one in 10 potential homebuyers the chance to step onto the property ladder and put a dampener on house prices, experts have warned. The base rate was doubled to 0.5% in what was the first of four increases analysts expect to see this year, with Capital Economics forecasting that the rate will reach 1.25% by the end of 2022. Analysts have warned that increasingly expensive debt will have consequences for buyers, with Capital Economics calculating that 60,000 people previously able to borrow would fail borrowing stress tests if rates hit 1.25%. In 2020, there were 614,000 purchases using a bank loan, according to UK Finance, and if this was repeated this year, one in 10 sales would fall through.
Mortgage costs climbing after interest rate hike
A number of banks have announced plans to increase mortgage costs following the Bank of England’s decision to raise the base rate from 0.25% to 0.5%. Barclays will increase its standard variable rates by 0.25% from March 1, as will Nationwide. Virgin Money customers on tracker rates will see a rise of 0.25% from April, while Santander has also said that tracker rates will rise by 0.25%. Lloyds Banking Group, which owns Lloyds Bank, Halifax and Bank of Scotland, said some rates are changing, while HSBC, Leeds Building Society, Yorkshire Building Society, Metro Bank and NatWest are said to be reviewing their options.
Police watchdog to examine alleged leaks at Lloyds bank
An investigation into allegations of fraud against Lloyds Bank is being examined by a police watchdog. Avon and Somerset Police has referred itself to the Independent Office for Police Conduct (IOPC) after claims that information was leaked to the bank. It relates to a long-running inquiry into allegations of fraud at the Lloyds Recoveries unit in Bristol.
PE turns gaze on professional services firms
Figures from law firm Mayer Brown show the number of private-equity backed acquisitions of UK professional services firms more than doubled over the previous year, from 19 in 2020 to 53 in 2021. Perry Yam, private equity partner and co-leader of the global Corporate & Securities practice at Mayer Brown commented: “Consultancy firms that have reliable streams of recurring revenue are very appealing targets for PE houses.” Yam adds: “PE funds are finding that those recurring revenues don’t just exist in traditional areas of professional services like accountancy, tax and legal, but also in newer subsectors like PR or digital consultancy.”
SEC considers tougher private equity disclosure rules
The US Securities and Exchange Commission is considering new rules that would see private equity firms required to provide expansive disclosures about the fees shouldered by investors, forcing them to disclose specific expenses they pass on to clients. SEC chair Gary Gensler believes that the industry's fees are opaque and too high.
BoA CEO pay hits $32m
Bank of America CEO Brian Moynihan's total compensation rose by $7.5m in 2021, with this representing a more than 30% increase on the year before. Mr Moynihan will receive $32m for the year, compared with $24.5m in 2020. The bank’s board said its decision to raise the chief executive's pay was based on the fact its net income soared to a record of $32bn last year and its stock price rose 47%.
Flybe hit with employment claims ahead of relaunch
Regional airline Flybe has been accused of demanding new pilots sign unusually aggressive confidentiality rules as a condition of their employment with industry sources claiming the move is designed to prevent new recruits from sharing information about working conditions with external parties. The airline is preparing to restart services from Birmingham airport this spring following its collapse in March 2020. Flybe is also said to be offering captains salaries as low as £50,000 a year while the going rate at a low-cost airline is £100,000.
Sunak plans ‘bonfire’ of City regulation
The Chancellor has met with dozens of financial firms and banking lobby groups before seeking a “bonfire” of regulations for the City of London. The Independent reports that Rishi Sunak will relax regulations and tear up rules, including some measures aimed at preventing future financial crisis. The Treasury has said it would reform regulation to promote “international competitiveness” and overhaul stock market rules to win more business from financial hubs like New York. Mr Sunak has also said he wants the City watchdog to act as a cheerleader for the industry it is meant to regulate. Experts suggest it is “extremely concerning” that Mr Sunak appeared to have consulted almost exclusively with financial sector interests to discuss post-Brexit regulation of the industry. Of 74 organisations that secured a meeting with Mr Sunak, 57 were banks, insurers, fund managers, financial technology firms or lobbying groups of those sectors. The Chancellor did not meet any non-governmental organisations, think-tanks or independent experts focused on financial services regulation.
Ministers mull listings shake-up
The Government is planning a rethink of rules in an effort to lure tech firms into listing in London. With officials said to be weighing strategies designed to make the UK a more attractive place to grow publicly listed tech firms after flotation, moves being considered include mandatory opportunities for individual investors to participate in listings, looser restrictions on analyst research and targeted tax incentives to encourage investors. City A.M. says changes to tax rules would be likely to be similar to the structure of the Enterprise Investment Scheme, which allows investors to claim tax relief on investment into smaller firms. The possible shake-up to listing rules follows a review of the regime led by Lord Hill last year. Ministers have already introduced a number of measures the review recommended, including the introduction of dual class share structures which allow founders to retain more control of their business after flotation.
Investment firms told to get legal advice over influencers
The Financial Conduct Authority (FCA) has issued a warning over the use of social media influencers, telling investment firms to get legal advice “to understand their responsibilities” before promoting their products in this way. The City watchdog said: “Retail investments’ use of social media influencers on various platforms to market investments is becoming a concern for us.” The FCA amended or withdrew 564 promotions in 2021, with this marking a 172% increase on the year before. Retail investments and retail lending saw the highest number of FCA interventions, with these sectors accounting for 77% of the total. It also reported a 10% increase in reports received about illegal financial promotions by unauthorised persons.
Insurers accused of exploiting loopholes in new rules
Loyal insurance customers say new rules designed to give them a fairer deal are failing to protect them from rising prices. FCA rules which came into force at the start of the year obligate insurers to treat all customers equally on price, meaning existing policyholders looking to renew should be offered rates that a new customer would be given. However, a Mail on Sunday investigation suggests some firms are exploiting loopholes in the rules and “running rings around the regulator.” The paper points to cases where those who query their renewal were offered a discount to encourage them to stay, while others have seen cheaper renewals as the insurer cut prices after the initial quote was issued. This, the paper suggests, “seems to fail the regulator's fairness test.”
Lloyd named interim FCA chair
The Treasury has announced that it has started the search for the next chair of the FCA. While officials seek Charles Randell’s permanent successor, Richard Lloyd, currently the senior independent director of the FCA board, will act as interim chair as of June 1. Meanwhile, it has been confirmed that Aidene Walsh will become interim chair of the Payment Systems Regulator (PSR) from April 1. Ms Walsh is currently a non-executive director of the PSR and an executive director with Banking Competition Remedies.
Carlyle in talks to acquire credit investment firm
Sources say Carlyle is in talks to acquire CBAM Partners in a bid to grow its credit investment platform and take on the likes of Apollo Global Management and Blackstone. CBAM manages $15bn in credit assets, such as collateralised loan obligations and structured credit products.
Activist investor Caligan takes ADMA stake
Activist investor Caligan Partners has bought a 5.6% stake in ADMA Biologics and may urge the biotech company to consider a potential strategic review or explore a sale. The hedge fund, which says shares in ADMA were undervalued and represent an attractive investment opportunity, said it plans to communicate with the management, the board, other shareholders or third parties, including potential buyers.
LEISURE & HOSPITALITY
Hospitality firms call for permanent VAT cut
Prices for restaurant meals and hotel stays are set to rise, with UK Hospitality saying firms are being forced to pass on surging costs. A survey by the industry body suggests prices across the sector are set to increase 11% on average this year as firms see steep increases in the cost of energy, labour, food, drink and insurance. The poll of more than 340 business saw 47% say they would be forced to increase prices by more than 10%, while 15% anticipate upping prices by more than 20%.
MEDIA & ENTERTAINMENT
Private equity groups hunt for Hollywood deals to cash in on streaming boom
Apollo and Blackstone are among the private equity groups investing in Hollywood production companies as they bet on continued demand for new TV shows from US streaming services.
Lyons hits out at Bailey over cost of living concerns
Economist Gerard Lyons, a former adviser to the Prime Minister, has accused Bank of England governor Andrew Bailey of failing to act quickly enough to ease the cost of living crisis. He suggested Mr Bailey has shown a “complacent attitude” toward the risk of inflation and says he “misread” the economy. He also said that in failing to “nip inflation in the bud”, the Bank had “not helped” to ease the cost of living crisis. Mr Lyons, a former chief economist at Standard Chartered, says the Bank’s inflation forecasts “have been poor and wrong” and accused policymakers of fuelling the “rampant” house prices that have made it harder for people to get on the property ladder.