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Daily News Roundup: Monday, 9th May 2022

Posted: 9th May 2022

BANKING

Debate over HSBC’s structure rumbles on

The Sunday Times and the Observer both report on the pressure brought to bear on HSBC to split off its Asian operations after Chinese insurer Ping An called for a debate about HSBC’s structure. A carve-up would see HSBC required to hold less capital as a smaller bank, freeing up an estimated $12bn. It also might help HSBC tackle what one senior City source said was a “growing sense that companies may have to choose whether they are big in the US or big in China”. However, analysts at Barclays estimated that up to $4bn of revenue could be at risk from a break-up, which could deprive any stand-alone Asian bank of revenues. Meanwhile, it has been suggested that Ping An's decision to air its grievances via the press is a result of pressures over its own faltering fortunes. As the debate rumbles on, HSBC's executives are expected to hold their ground when they speak with the insurer later this month. HSBC said: "We believe we've got the right strategy and are focused on executing it. Delivering on this strategy is the fastest way to generate higher returns and maximise shareholder value." The bank has hired Goldman Sachs to bolster its defence against calls for a carve-up.

Lenders clamp down on buy-to-let borrowing

High-street banks have increased stress-testing on buy-to-let mortgages, dramatically reducing the amount that landlords can borrow. Santander has tightened its test on a five-year fixed-rate buy-to-let mortgage, increasing the necessary rental income in proportion to the loan. Metro Bank has also tightened its stress test, meaning the maximum loan size for an investor who expects £1,000 a month has fallen by 12%. Experts say these changes may indicate lenders are worried about the buy-to-let market and long-term rental voids.

Banks up mortgage rates following BoE decision

Several mortgage lenders have increased their variable rates after the Bank of England increased the base rate by 0.25 percentage points to 1% on Thursday. It was the fourth rise since December. TSB, Santander and Barclays have subsequently increased rates on variable mortgages by the same degree, with the typical borrower set to pay £42 more on their loans each month.

INTERNATIONAL

Swiss vote against loosening banking secrecy law

Swiss politicians have voted against loosening the country's banking secrecy laws. The move has elicited criticism from the UN and campaign groups who said the laws will continue to harm press freedom. Lawmakers said the country’s banks had strengthened their control on money laundering and white collar crime and were meeting international standards. A parliamentary subcommittee were reviewing the law in reaction to the Suisse secrets investigation into Switzerland's second largest bank, Credit Suisse.

Russia provisions hit ING’s earnings

ING reported worse-than-expected quarterly net income of €429m on Friday, far below the €679m expected by analysts. "Net additions to loan loss provisions were €987m," the company said. "The geopolitical situation, with the Russian invasion of Ukraine, had a significant impact on the risk costs in this quarter, with €834m of risk costs associated with our Russia-related exposure."

Western banks prepare for $10bn hit in retreat from Russia

European banks followed their US counterparts last week in setting aside billions in provisions ahead of the closure of their Russian operations. Western banks collectively have $86bn of exposure to Russia and are setting aside more than $10bn in expectation of losses on their ventures, according to the FT.

Macquarie profits hit record on market volatility and M&A boom

Australia’s biggest investment bank Macquarie Group saw net profit up 56% from the previous year to a record A$4.7bn ($3.3bn), with increased volatility pushing up demand for the group’s hedging and trading services.

AVIATION

BA cuts flights as it struggles to rehire after axing 10,000 staff

British Airways is cutting flight schedules ahead of what experts predict will be a busy summer for travel. The airline is struggling to hire staff after culling nearly 10,000 jobs during the pandemic.

CONSTRUCTION

Construction struggles amid soaring input costs

Rising energy and raw material costs have hit the UK's construction sector, the S&P Global/CIPS construction purchasing managers' index (PMI) survey reveals. The index posted a drop to 58.2 in April after two months at 59.1. Tim Moore, economics director at S&P Global, said: “The construction sector is moving towards a more subdued recovery phase as sharply rising energy and raw material costs hit client budgets. House building saw the greatest loss of momentum in April, with the latest expansion in activity the weakest since September 2021. Commercial and civil engineering work were the most resilient segments, supported by COVID-19 recovery spending and major infrastructure projects, respectively.”

FINANCIAL SERVICES

Treasury hires top law firm to help with Brexit reforms

Official documents reveal the Treasury has had to bring in outside help to undertake post-Brexit legal work because the department is under resourced. Rishi Sunak has hired Hogan Lovells to advise the Government on everything from regulatory equivalence and crypto assets to trade deals and the powers and duties of the Bank of England and the City watchdog. The decision to bring in a team of top City lawyers highlights the complexity of financial services regulatory reform and sheds light on the limitations of government departments, the Telegraph’s Simon Foy opines.

PM to remove EU laws in bid to boost economy

Boris Johnson will attempt to win back favour with voters tomorrow by using the Queen’s Speech to highlight a slew of upcoming post-Brexit reforms, including allowing insurance companies to invest their assets in long-term infrastructure projects. The Treasury believe the proposals will open up more than £10bn of UK investment.

MANUFACTURING

Nvidia fined $5.5m for disclosure failings

The Securities and Exchange Commission (SEC) has fined Nvidia $5.5m for concealing the impact of crypto mining on revenue. The US financial regulator said Nvidia failed to tell investors that revenues for its gaming business were being boosted by the sale of graphics processing units to crypto miners in 2018.

MEDIA & ENTERTAINMENT

Sorrell says results delay ‘unacceptable and embarrassing’

The founder of S4 Capital, Sir Martin Sorrell, has described the twice-delayed reporting of the company’s annual results as “unacceptable and embarrassing” and pledged to restore investor confidence in the advertising group. On Friday, Sir Martin addressed the issue for the first time, telling investors: “Significant changes in our financial control, risk and governance structure and resources at board, company and practice level are being implemented and planned to try to ensure this never happens again.” S4 Capital reported a doubling of revenues to £686m last year. However, the company swung to a pre-tax loss of £56.7m after incurring £136.9m in charges relating to acquisitions, amortisation and share based payments.

Racing Post owner close to £500m sale

Private equity firm Exponent is closing in on a £500m sale of the Racing Post, with Better Collective now leaving rivals trailing in the race for the horseracing bible. Under Exponent’s ownership the Racing Post, rebranded Spotlight Sports Group, has morphed into a sports data company, which bankers believe will help it earn a decent price tag.

REAL ESTATE

Average house price heads swiftly towards £300k

Figures from the Halifax show house prices rose by 1.1% last month, bringing the annual pace of growth to 10.8%. It is the tenth consecutive monthly rise - the longest run since 2016 and leaves prices nearly £28,000 higher compared to April 2021. The price of the average home is now £286,079 and the lender says that, at the current rate of growth, the price of a typical home could hit £300,000 by the end of the year. Halifax managing director, Russell Galley, said: “Housing transactions and mortgage approvals remain above pre-pandemic levels and the continued growth in new buyer enquiries suggests activity will remain heightened in the short-term.”

RETAIL

Morrisons tables improved offer for McColl's

Morrisons lodged a last-ditch offer to seize control of McColl's on Sunday in a move that promises to repay the convenience store chain’s lenders in full. McColl's lenders rejected a solvent rescue offer from Morrisons on Friday that would have involved them rolling over more than £100m of debt into the supermarket chain but being repaid in full as the loans expired. It was reported last week that lenders were demanding immediate repayment, leading them to opt for a rival bid from EG Group, the owners of Asda. The new bid form Morrisons prompted EG Group to improve its bid to include the funding of McColl’s pension scheme.

Footfall edges up slightly

Figures from the British Retail Consortium show total UK footfall was down 13.1% last month on April 2019. But the figure marked a 2.3 percentage point improvement on March. BRC chief executive Helen Dickinson said: “After a slow start for footfall in April, as the weather improved, customers were more inclined to visit their favourite shopping destinations. Retail parks and shopping centres experienced the biggest improvement to footfall, as the public visited locations with the largest mix of shops to scope out the best deals.”

SPORT

Chelsea agree sale terms with Todd Boehly

Chelsea have agreed terms on the £4.25bn ($5.2bn) sale of the club to a consortium led by Todd Boehly, co-owner of the LA Dodgers baseball team. The consortium is led by Boehly, but Californian private equity firm Clearlake Capital will own a majority of the shares in Chelsea. Of the total investment being made, £2.5bn will be applied to purchase the shares in the club while a further £1.75bn will be committed for future investment in the club. Chelsea was put up for sale before owner Roman Abramovich was sanctioned for his alleged links to Russian president Vladimir Putin following the invasion of Ukraine. The proceeds of the sale will go into a frozen bank account to be donated to charity.

ECONOMY

BoE acted too slowly on inflation – Haldane

The Telegraph’s Tom Rees interviews the former chief economist at the Bank of England, Andy Haldane, who claims the central bank squandered a chance to tackle the cost of living crisis because it failed to act on inflation fast enough. Mr Haldane had sounded the alarm on inflation in early 2021 but was the lone dissenter - the consensus was that price rises would be transitory. Mr Haldane told the Telegraph: “Acting early would have saved the need for quite the degree of tightening that might now be needed to keep the lid on inflation.” He added: “It was a stitch in time saves nine argument, basically.” His comments come after the BoE on Thursday raised rates to 1% and warned that inflation will surge above 10% by the end of the year, its highest level in 40 years.

OTHER

Barclays accused of avoiding almost £2bn in tax

A lucrative arrangement in Luxembourg that allowed Barclays to pay less than 1% on profits for more than a decade saved the bank almost £2bn, the Guardian reports. In 2009, Barclays booked profits from the $15.2bn sale of its Barclays Global Investors in Luxembourg rather than in the UK where it is headquartered. The deal meant Barclays could offset future profits against a drop in the value of company shares it acquired as part of the deal. Labour MP Margaret Hodge said: "Why is Barclays setting up shop in Luxembourg at all, other than to avoid tax?" 

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