BANKING
BoE points to City regulators amid pensions turmoil
The Bank of England bought £4.56bn of long-dated and inflation-linked bonds in two operations on Wednesday as Governor Andrew Bailey moved again to try and calm UK gilt markets. The purchases bring the total spent since the Bank’s intervention began to a little over £13bn. Bailey remains under pressure to extend the support, which he insists will end on Friday. The BoE is now calling for lessons to be learned from the crisis, which saw a wave of cash calls for pension funds that had been using derivatives to manage their risk. Funds were then forced to sell gilts to meet the cash calls, leading to a spiral that prompted the BoE to step in. The BoE said it would work with both The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) “to ensure strengthened standards are put in place” in the pensions market. Nikhil Rathi, chief executive of the FCA, which regulates the asset managers offering the derivatives bought by pension funds, said the regulator would look at what can be learned from the debacle while Charles Counsell, the CEO of TPR called for pension funds to review the resilience and liquidity of their investments and ensure they are protecting the interests of their members.
Banks fall on bad loan fears
UK bank stocks were down on Wednesday on fears that households will soon find it harder to pay home loans. The concerns were driven by signals from the Bank of England that a significant interest rate rise could be on the cards when it meets next month. The central bank’s chief economist Huw Pill said a “significant” monetary policy response will be required in November to curb market volatility in the wake of the Chancellor’s mini-Budget. Financial markets expect the Bank to raise its base rate from 2.25% to 3.25% at that meeting, the biggest rise since Black Wednesday in 1992. Mortgage rates have been pushed to over 6% and economists are worried that will put too much pressure on households and spark tension in the UK housing market. The BoE later said that Britain’s banks had “considerable capacity to support lending” and would be able to withstand “the impact of severe economic outcomes”, such as higher levels of loan defaults.
PRIVATE EQUITY
‘Everything in UK is on sale,’ says US private equity executive
US investors are expected to do more deals in the UK to take advantage of plummeting value of sterling, venture experts say, with dealmaking likely to increasingly involve listed companies being taken private.
INTERNATIONAL
HSBC accused of “rampant front-running”
A former HSBC trader has accused the bank of having an “epic” frontrunning problem. Stephen Callahan, who joined HSBC’s US rates trading desk as a director in 2021, claimed in a suit filed Tuesday in Manhattan federal court that he witnessed “rampant front-running” and was ultimately fired for complaining about it to the bank. Front-running is the trading of securities and other asset classes by someone privy to information about a large impending transaction that will move prices. Shares of HSBC fell 2.4% on Wednesday morning in Hong Kong, taking this year’s decline to 17%.
Deutsche Bank names new APAC head of private bank
Deutsche Bank is replacing its Asia Pacific head of international private banking with Jin Yee Young, who has resigned from her role as the deputy head of Credit Suisse's Asia Pacific wealth management business.
CONSTRUCTION
Demand for new-build homes cooling fast, says Barratt
Economic turmoil and higher borrowing costs is putting the brakes on demand for new-build housing, Barratt Developments said on Wednesday as the housebuilder revised down profits expectations.
FINANCIAL SERVICES
UK finance sentiment falls at fastest pace since 2019
A survey by the CBI said on Thursday that sentiment in the financial sector had fallen at its fastest pace in three years. In the third quarter to September, optimism fell at its fastest pace since September 2019, when it was hit by uncertainty around Brexit negotiations. "While activity in the financial sector looks to be in a good position, with profitability and volumes growth remaining strong, the rapid fall in sentiment and lacklustre investment intentions illustrate the challenging conditions that firms find themselves in," CBI Chief Economist Rain Newton-Smith said. "Recent market volatility stemming from the Government's mini-Budget - alongside other global developments - underlines the clear need to restore macro-stability and boost business confidence," he added.
Binance made ‘grossly inaccurate’ UK filings, joint venture partners allege
A company that went into a joint venture with Binance has accused it of filing a “grossly inaccurate” annual report for its UK subsidiary Binance Digital. Dimplx, which owns 20% of the unit, said financial statements for the period ending on Dec. 30, 2020, were inaccurate and incorrectly recorded the share capital allotted to Dimplx. “Dimplx Limited has reserved its right to obtain a court ordered valuation of its shareholding as well as its right to seek both ordinary and exemplary damages,” the firm said in its annual report.
Blackstone invests $500m in Resolution Life
Blackstone signed a partnership deal to manage certain investments for Resolution Life and has agreed to invest $500m in the life insurance group, the companies said on Wednesday. The asset manager has been executing a similar playbook in recent years, looking to boost its assets under management (AUM) by adding insurance investments in its portfolio. Last year, Blackstone agreed to manage an initial $50bn of insurer American International Group's life and retirement business, which now trades on the stock market as Corebridge Financial.
REAL ESTATE
End of UK’s housing market boom in sight
A new report from the Royal Institution of Chartered Surveyors (RICS) reveals the number of inquiries from potential homebuyers fell for a fifth month in a row in September, while sales fell to the lowest level since May 2020. The number of new instructions to sell has also continued to fall with stock levels are at historic lows. Rising mortgage rates are pricing new buyers out of the market, RICS said, while homeowners looking to remortgage are facing crippling increases in payments. “For now mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grow,” said Simon Rubinsohn, chief economist at RICS. “It is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.”
Industry body warns on property sector’s failure to cut emissions
Unless property owners take account of the cost of transitioning to net zero they will be at risk of major writedowns on less energy efficient offices, shops and residential property, the Urban Land Institute has said.
RETAIL
M&S to shut scores of stores to help save £300m
Marks and Spencer will shut a quarter of its shops over the next five years as the retailer seeks to make £300m of savings. The move comes as the company’s energy looks set to rise to £100m next year. The closures will help to save costs by reducing the use of refrigerators and lights. Staffing costs are also understood to have risen by 7%.
ECONOMY
Truss under pressure to make tax cut U-turn
The Prime Minister has insisted the Government will not cut public spending to reduce UK debt. Attempting to address concerns about how the Chancellor’s tax cuts would be funded, Liz Truss told the Commons on Wednesday that she was not planning public spending reductions, but the Government would be ensuring that public money is spent well. Kwasi Kwarteng’s mini-Budget set out plans for £43bn of tax cuts intended to stimulate economic growth. But worries over how these would be funded has rattled markets. Tory MPs are now putting pressure on Ms Truss to reverse plans to scrap the planned increase in corporation tax in order to find savings.
UK economy shrank in August as cost of living crisis bites
New figures from the Office for National Statistics show the UK economy shrank by 0.3% in August. The fall from July’s figure, which was down on predictions of no month-on-month change, was driven by a slump in manufacturing production and consumer services. Output was also dragged down by maintenance in the North Sea which pushed down oil and gas production.