A different kind of NPL wave is on the way
David Abbott of BTG Advisory says that while support measures rolled out by the Government and Bank of England helped avert a full-blown corporate insolvency crisis amid the coronavirus pandemic, a new wave of non-performing loans (NPLs) has merely been delayed. Citing figures which show the Government’s flagship coronavirus loan schemes have extended £71.5bn to more than 2.1m SMEs, he says the cost of survival for many firms has been to voluntarily load on more debt. Mr Abbott says the state support has created an artificial protective bubble and warns that when support tapers, three things are likely to emerge: corporate insolvencies, a new generation of NPLs; and more zombie companies. He goes on to look at NPLs, saying the post-pandemic wave will be driven by a broader range of sectors than the previous real estate-driven cycle. Banks, he suggests, will need to loosen capital requirements, while NPL investors will need specialist expertise focused on restructuring and turnaround. BTG Advisory, Mr Abbott says, expects the NPL market to be slow to pick up pace but could last for three years.
BANKING
Firms given longer to repay coronavirus loans
Rishi Sunak has announced that small firms will be granted more time to repay state-backed loans taken out to help survive the coronavirus lockdown, with the Chancellor saying the move gives companies "breathing space to get back on their feet". The new arrangements will allow those who have utilised the Bounce Back Loan scheme to extend the length of the loan from six years to ten; make interest-only payments for six months; and pause repayments entirely for up to six months. This came as Sam Woods, chief executive of the Bank of England’s Prudential Regulation Authority, said taxpayers faced a "significant loss" from the state-backed loans, warning that as many as half will go bad.
SMEs turn to digital banks
New research from payment specialist Marqeta suggests small firms have lost confidence in bigger banks and are increasingly looking to digital challengers. The study shows that 84% of SMEs are frustrated with their current banking experience, with nine in ten calling for more digital services. With the pandemic heaping pressure on many firms, close to a third said they are frustrated with lengthy lending decisions and inflexible credit offerings from their bank. The study also shows that 67% of smaller firms are considering switching their business bank account provider. Ian Johnson of Marqeta said SMEs are “craving digital banking experiences, but have previously been limited by what’s on offer.” He added that the likes of Starling Bank, Revolut and Monzo have launched business banking propositions “which are driving up SMEs’ expectations around business banking”. This may, he believes, “create a perfect storm”, warning that if banks don’t improve existing digital services, “they risk losing a vital revenue stream as customers switch to other providers.”
London bankers dominate M&A deal rankings
A ranking of Europe’s top investment bankers by MergerLinks reveals nine of the top ten bankers by number of deals are based in London. Europe’s top investment banker in 2020 was Credit Suisse banker Max Mesny who advised on two deals worth nearly $40bn, followed by his colleague Joe Hannon who secured three deals worth $33.8bn. City AM notes that the report highlights concerns that the banking industry has a lot of catching up to when it comes to gender diversity, with two women appearing in the top 50 - Karen Cook, Goldman Sachs’ chair of investment banking, and Celia Murray of JP Morgan.
UK banks prepare trimmed bonus awards
NatWest Group has informed the Treasury that it wants to hand out more than £200m in staff bonuses for 2020. This equates to about a third less than the previous year while a £2,000 cap on cash handouts, which has been in place since the financial crisis, will continue. Elsewhere, Barclays is expected to hand boss Jes Staley a bonus of between £500,000 and £800,000 - less than half of what can be awarded under the bank’s boardroom pay policy. Other banks are also expected to announce significantly lower bonus pools this year due to the pandemic with the exception of Lloyds Banking Group which announced in December it would axe staff bonuses for the year after profits plunged during the pandemic.
Banks make it harder to remove payment blocks
Banks including Barclays, NatWest, and Lloyds have extended the cooling-off periods imposed on gamblers who request to have a payment block lifted. Katie Reynolds-Jones from Gamstop said: “The banks are learning; anything that makes someone stop and think and remember why the block is there in the first place is great.”
International coalition of politicians pressure HSBC
Politicians are increasing pressure on HSBC over its decision to freeze the accounts of Hong Kong activists with the international Inter-Parliamentary Alliance on China writing to the bank’s chairman Mark Tucker urging HSBC publicly commit to "protecting the access to funds of individuals and their families subject to politically motivated charges issued by the Chinese and Hong Kong authorities".
Talks stall on shared Covid loan debt collector for UK banks
UK banks face the prospect of handling a wave of fraud and defaults related to Covid loans after talks on the creation of an industry-wide debt collection service stalled, the FT reports.
Banks set for clash with UK regulator on ringfencing
A review of ringfencing rules has elicited a slew of objections to the regulations from banking industry lobbyists, with larger institutions pointing to the harm to inward investment while smaller banks cite compliance costs.
NatWest set to sell shopping centre loans
NatWest Group has appointed advisers to explore the sale of a £550m portfolio of loans secured against 25 assets - predominantly shopping centres.
PRIVATE EQUITY
BlackRock urged to take tough line with HSBC over climate change
Two of BlackRock’s British pension fund clients, PensionBee and Merseyside Pension Fund, have urged the asset manager to put pressure on HSBC to rein in its financing of the fossil fuel industry.
Hedge fund Marshall Wace seeks venture capital deals
Marshall Wace is expanding into late-stage venture capitalism with a focus on privately owned healthcare companies, according to people familiar with its plans.
INTERNATIONAL
Credit Suisse turned blind eye as top banker stole from billionaire clients
A report leaked from Switzerland’s market regulator, Finma, argues that Credit Suisse ignored compliance violations by top banker Patrice Lescaudron for years ahead of his criminal conviction in 2018.
UBS to lift investment bank bonus pool
UBS is set to raise the bonus pool for its investment bankers by up to 20% after a surge in trading revenue helped deliver the highest profit in five years.
AVIATION
Rolls-Royce to shut factories in the summer
This summer will see Rolls-Royce shut down its jet engine factories for the first time as the company tries to save costs in the midst of the pandemic. The shutdown will last a fortnight and affect 12,500 staff in Britain.
FINANCIAL SERVICES
Barclays boss: Brexit will be 'more likely positive than negative'
Barclays CEO Jes Staley believes the UK's financial services industry should focus its energies on taking on New York and Singapore rather than Frankfurt and Paris, post-Brexit. He suggested that while fostering co-operation and trust with the EU is important, it should not come at the cost of being uncompetitive. Mr Staley, who told the BBC that Brexit is “more than likely on the positive side than on the negative side”, said he believes the UK’s exit from the union provides it with the “opportunity to define its own agenda”, arguing that “defining that agenda around financial services, staying competitive with other markets outside of Europe” is what the Government should be focused on. Mr Staley added that the UK needs to ensure the City “is one of the best places, whether it was regulation or law or language, or talent that manages these flows of capital well.”
Scottish Widows targets green portfolio by 2050
Scottish Widows has vowed to reach net zero carbon emissions across its investments by 2050, and to halve its carbon footprint by 2030. Maria Nazarova-Doyle, head of pensions investments, said: “Moving to net zero will protect savings against climate-related risks and uncertainty and offer longer-term sustainable growth by accessing low carbon transition opportunities.”
PayPal should be part of the national fraud refund scheme
Campaigners are calling for payment companies such as PayPal to join the national voluntary fraud compensation scheme run by banks, which provides guidelines for reimbursing customers who have been tricked into parting with their money.
High-flying Bird pilots new path at Standard Life Aberdeen
The FT profiles Stephen Bird, the CEO of Standard Life Aberdeen, who talks about his plans is to strengthen the group’s institutional investment and adviser platforms.
ESG funds defy havoc to ratchet huge inflows
Sustainable investing has boomed over the course of the pandemic; ESG funds now equal or beat their parent benchmarks. But concern over greenwashing remains with existing funds rebranded with green credentials.
Cost of liability insurance for company directors soars
The cost of insuring British directors has doubled in the past year, the FT reports, and could rise further with proposed new regulations making directors personally responsible for the accuracy of financial statements.
HEALTHCARE
Three UK manufacturers selected to make rapid Covid tests
Three British companies have been selected by the UK Government to make up to 2m lateral flow devices per day: Omega Diagnostics, SureScreen and Global Access Diagnostics.
Priory property deal saddles mental health chain with high rents
Mental healthcare chain the Priory agreed an £800m sale-and-leaseback deal as part of its recent takeover, burdening the firm with annual rental costs of about £50m, the FT reports.
MANUFACTURING
Manufacturers call for a new Marshall Plan
Ministers have been urged to devise an industrial strategy akin to the Marshall Plan to help British manufacturers recover from the pandemic. Stephen Phipson, the chief executive of Make UK, said that Britain needed an industrial strategy as ambitious as the American aid programme that helped to rebuild western Europe after the Second World War. He added that as well as the pandemic, manufacturers have been wrestling with complications at Britain's borders after the end of the Brexit transition period on December 31.
PROFESSIONAL SERVICES
New audit watchdog delayed until 2023
Michael O'Dwyer in the Telegraph reports that reform which will see the Financial Reporting Council replaced by the Audit, Reporting and Governance Authority will not be launched until April 2023. He cites sources who say that while Business Secretary Kwasi Kwarteng has pledged to prioritise reform of the audit sector, plans “put on the back burner” by his department due to the coronavirus crisis and Brexit will not be placed before Parliament until next year.
REAL ESTATE
House prices fall as end nears for stamp duty holiday
House prices fell 0.3% between December and January, figures from Halifax show, with this the biggest monthly fall since the housing market shutdown in April. The typical home sold for £251,968 in January, a 5.4% increase on January 2020’s average but a drop of £865 compared to the previous month. The annual price growth rate fell 0.6 percentage points from the rate recorded in December, the second consecutive month of decline for year-on-year growth, which was down 2.2 percentage points from a November peak. The dip in prices comes as demand eases, with buyers seeing their chances of finalising a deal before the stamp duty holiday ends on March 31 decreasing.
RETAIL
Lockdown hits retail sales
Figures show that retail sales fell 10.1% last month – the worst January result since records began in 2017. This came amid the latest nationwide lockdown which has prevented non-essential retailers from opening.
ECONOMY
Bank braced for a post-Covid spending binge
Bank of England governor Andrew Bailey believes that once Covid restrictions are lifted Britons will embark on a spending spree and provided the supply side can cope with demand the public are likely to splash out with the estimated £125bn in extra savings they have accumulated since the start of the pandemic. Mr Bailey’s comments echo those of his deputy Ben Broadbent who also anticipates a strong recovery in consumer spending as coronavirus restrictions are eased, although concern over coronavirus variants could dampen demand.
OTHER
Contactless limit to rise to £100
The contactless card payment limit is set to rise to £100 from the current maximum of £45. The change, which will be made in the next Budget, was not possible while Britain was bound by EU rules, which cap payments at €50.