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Daily News Roundup: Monday, 7th March 2022

Posted: 7th March 2022


BoE may end borrowers’ stress test

The Bank of England is considering ditching the stress test which requires lenders to check if a borrower can afford a mortgage if they have to pay their lender’s standard variable rate plus 3 percentage points. The Bank is consulting on a plan to replace the stress test with looser Financial Conduct Authority rules which are based on expected future interest rate rises and require a minimum stress test of 1 percentage point above a borrower’s mortgage. Research suggests that the present stress test restricts 30,000 borrowers a year to smaller mortgages than they wanted. George Nixon in the Sunday Times says that it might seem an unusual time to change mortgage rules, with bills, costs and interest rates rising, but notes suggestions that the stress test has been too restrictive. James Daley from consumer group Fairer Finance said limiting mortgages based on income multiples was a “crude” way of doing things, arguing that a borrower’s outgoings, commitments and career were as important. “As long as people can afford it — including if interest rates go up significantly — I don’t think we should be too concerned about lending people more,” he said. It is noted that in 2010, 10.6% of mortgages were for four or more times a person’s income, while this year 12.9% were at this income multiple or higher.  

MPs urge global banks to close Russian offices

Lawmakers in the UK are calling for international banks to withdraw their services from Russia amid an exodus of large companies from other sectors closing offices in the country. Labour MP Dame Margaret Hodge said banks should do more than enforce sanctions: “While they may not have to leave Russia yet according to the law, there is a moral dimension to this, and I fully expect that these banks will do the right thing and start severing ties with Russia and the Russian economy.” Liberal Democrat MP Layla Moran and campaigners echoed the call.


Russian banks turn to Chinese payments system

Following the move by Visa and Mastercard to suspend operations in Russia, the country’s largest banks are linking up with China’s UnionPay system. Sberbank and Alfa Bank said they will couple the UnionPay network with Russia’s own state-backed Mir payment system, which was set up in 2014. The development comes after many Russian banks were ejected from the Swift payments system leading to concerns they will turn to alternatives such as China’s CIPS. The Telegraph’s Tom Rees posits that the changes provide further evidence that “the world’s financial system is splintering, with Moscow and Beijing challenging the hegemony of Western banking infrastructure.” American Express joined the boycott by payment giants on Sunday, suspending all operations in Russia and Belarus. Meanwhile, the FT reports that Russia’s second-biggest lender, VTB Bank, is preparing to wind down its European operations after being hit by sanctions. The move follows the decision by Sberbank, Russia’s biggest lender, to exit the central and eastern European market last week.

Bank staff told to consider Ukraine comments

BNP Paribas has warned bankers to watch what they say online about Russia's invasion of Ukraine, telling staff they must clarify that any personal social media posts about the crisis represent their own views rather than those of the bank. BNP has singled out LinkedIn, noting that posters are easily identifiable as employees. The Sunday Telegraph’s Simon Foy says this comes as global firms “scramble to show support for Ukraine while also trying to avoid alienating clients”.

ING: $770m in loans affected by sanctions

Dutch bank ING has warned that about €700m in outstanding loans are "affected" by sanctions on Russian entities and individuals by Europe and the US. It said it has €5.3bn in loans to Russian borrowers, representing 0.9% of its total group loan book, while in Ukraine it said it has €500m in loans, representing 0.1% of its loan book.


Germany and France push for break-up of IAG

Ryanair CEO Michael O’Leary has claimed politicians and lobbyists in Germany and France are pushing for British Airways to be spun out of IAG - the FTSE 100 airlines group that owns the carrier. EU ownership and control regulations pertaining to airlines were suspended following Brexit but are set to be reinstated later this month. Previously, airlines operating within the EU needed to demonstrate that they were “owned and controlled” from member states. With a quarter of BA parent IAG owned by Qatar, the UK flag carrier could be in breach of the rules when they are brought back into force. Mr O’Leary said the French and Germans are “really gunning” for IAG. “I think it is inevitable that BA will be forced out of IAG. IAG will become a Spanish/Irish group,” he added.


FCA urged to deliver greater data-sharing

Moneyhub has told the Financial Conduct Authority (FCA) there needs to be greater data-sharing among financial firms. Writing in response to the City watchdog’s consultation on its consumer duty proposals, Moneyhub highlighted open finance as an effective tool in achieving better financial outcomes for consumers. The fintech says financial institutions should make customer data more readily available through the adoption of open data standards, saying this will “enable financial businesses to better understand, monitor and act upon the FCA’s consumer duty structure”. Sam Seaton, chief executive at Moneyhub, said: “Open banking created a revolution, but we now need to go several steps further. Some financial institutions have been slow on the uptake of open data and they risk falling behind their peers.” The FCA’s new consumer duty is designed to create a higher level of consumer protection in retail financial services. The regulator, in a consultation paper published in December, said the final rules are set to be published in July 2022 and come into force at the end of April 2023.

City withdraws support of Moscow financial centre plans

City of London lobby group TheCityUK has terminated an agreement supporting the development of Moscow as an international financial centre, pulling back from a memorandum of understanding with Moscow International Finance Centre and Forum Analytical Centre. TheCityUK, with the support of the UK Government, had been working with a Russian government initiative to transform Moscow into a global financial centre. TheCityUK said: “Under the current circumstances, such ambitions are no longer currently possible or appropriate.”

FCA seeks fairer loans for vulnerable borrowers

The Financial Conduct Authority is looking at ways of encouraging firms to lend to the most vulnerable borrowers after the collapse of the payday loans industry. A crackdown on unaffordable lending to customers with weak credit histories has left a vacuum in the market which the FCA is looking at resolving. A spokeswoman for the FCA said the regulator was investigating the issue of credit availability and how to improve its supply to consumers with poor creditworthiness.

Gender parity progress too slow - Blanc

Amanda Blanc, the Treasury's champion on women in finance and the CEO of Aviva, has warned that it could take another 30 years to achieve gender parity at senior levels of the financial services industry. Blanc said: "Progress towards gender equality in the financial sector remains frustratingly slow. Women, companies and society cannot afford to wait 30 years when we can achieve this in 10. We've got to work quicker and harder, for the sake of women, for the sake of society."


Ousted Glaxo exec agrees to repay $4m

GlaxoSmithKline has clawed back $3.86m from Moncef Slaoui, a former senior executive who was dismissed after an employee accused him of sexual harassment. Mr Slaoui, who was chair of subsidiary Galvani Bioelectronics and a former head of vaccines at GSK, has agreed to return the money after the company’s remuneration committee “exercised its discretion and applied the clawback provisions under the recoupment policy”.


Cevian Capital calls for governance overhaul at Ericsson

Activist investor Cevian Capital has called for a governance overhaul at telecoms firm Ericsson after it was found to have made possible payments to terrorist organisation Isis. President and CEO Borje Ekholm last month said Ericsson may have breached compliance rules and made payments for transport routes controlled by Isis. Cevian wants the powers of two of Ericsson’s long standing investors to be curbed by overhauling shareholder rules which have allowed them to dominate the board, with each holding a deputy chair position. Cevian co-founder Christer Gardell said there is “a complete lack of trust” in corporate governance at Ericsson.


House prices hit £244k but growth is slowing

The growth in house prices is showing signs of slowing down, according to Zoopla’s house price index. The data shows that property prices increased by 7.8% to £244,100 in the year to January, while new home listings were 5% higher in January than the five-year average. However, there are signs the rate of growth is slowing, with property values up by just 0.9% in the past three months. This marks the slowest growth since August 2020. Grainne Gilmore, head of research at Zoopla, said the sheer level of activity in the market in recent years “eroded” the stock of homes for sale, but added that data indicates that more homes are now coming to the market and this will create more choice for buyers. She added that the imbalance between high demand and supply “will take much longer to unwind, and this imbalance will continue to underpin pricing in the coming year.”

Hammerson heads towards recovery

Hammerson has closed its losses and posted a 122% rise in earnings, as it recovers from plunging retail rent during the pandemic. Adjusted earnings for the group hit £81m in 2021, up from £37m in 2020, as it felt the lift of raised rental income and a recovery in value retail. Losses tightened to £429m, down from £1.73bn in 2020, which the firm said was largely due to a portfolio revaluation. Hammerson said it was now beginning to see the lift from footfall recovering and rising demand for prime retail space, but chief executive Rita-Rose Gagné said there was still more work to be done.”


BCC downgrades growth forecast

The British Chambers of Commerce (BCC) has downgraded its expectations for economic growth. While it predicted growth of 4.2% for 2022 in a forecast in December, it now expects growth of 3.6%, warning of the impact of soaring inflation, tax rises and Russia's invasion of Ukraine. The revised estimate suggests growth this year will come in at less than half the 7.5% recorded in 2021. The BCC said it expects inflation to hit 8%, with this set to reduce disposable incomes, while interest rates are likely to increase to 1.5%. Suren Thiru, head of economics at the BCC, said: “Our latest forecast signals a significant deterioration in the UK’s economic outlook.” Pointing to the effects of rising inflation, supply chain disruption and higher taxes, he warned that growth is set to “run out of steam in the coming months”. The BCC report also forecasts that business investment will grow 3.5% in 2022, down from a previous forecast of 5.1% and far lower than the Bank of England’s latest projection of 13.75%. The business lobby group expects consumer spending to be up 4.4% on 2021, down from a previous forecast of 6.9%.

World Bank: Ukraine crisis is an economic catastrophe

World Bank president David Malpass says Russia’s invasion of Ukraine is "a catastrophe" for the world which will cut global economic growth, saying that it “comes at a bad time for the world because inflation was already rising.” Stressing that his biggest concern is "about the pure human loss of lives", he went on to note the impact of global energy prices rising and inflation. The World Bank is in the process of putting together a $350m aid package that Mr Malpass says “will help fund the budget of Ukraine,” paying for things such as government salaries, social welfare and emergency supplies at a time when the conflict has seen tax revenues collapse.

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