Kwarteng could scrap bankers' bonus cap
Chancellor Kwasi Kwarteng reportedly wants to remove a bonus cap which restricts banking executives’ pay. The cap, which limits bankers’ pay at twice their annual salary and was brought in as part of EU-wide efforts after the financial crisis, has drawn criticism from commentators who warn that it is anti-competitive. While the cap puts London in line with Frankfurt and Paris markets, there are concerns that it has given New York and Singapore an advantage when it comes to attracting the sector’s top talent. Mr Kwarteng wants to scrap the cap as part of efforts to revitalise the City and deliver a post-Brexit shake-up of regulations. This comes after Prime Minister Liz Truss said it was time to remove EU-era regulation. She told City AM that the City is a “jewel in the crown of the UK economy but for too long its potential has been held back by onerous EU regulation, which have stifled growth and stunted investment.” The Times notes that watchdogs at the Bank of England’s Prudential Regulation Authority have privately dismissed the cap as a “blunt instrument,” while American investment banks in London have been particularly critical of the bonus limit. Richard Gnodde, head of Goldman Sachs’ international operations, said eliminating the limit would make London a more attractive proposition.
1 in 3 borrowers cannot afford mortgage repayments
A third of mortgage borrowers say rising interest rates mean they can no longer afford their repayments, according to a poll commissioned by Butterfield Mortgages. The survey of 2,000 UK adults found that 33% feel they can no longer afford their mortgage repayments as a direct result of rate rises over the past year. This rises to 48% among mortgage customers aged between 18 and 34. The Butterfield poll also found that 27% of current mortgage holders are actively shopping around for a new mortgage.
Private equity still investing in dirty energy
Private equity firms are pumping billions of dollars into dirty energy projects, exposing investors to unknown financial risks, new research suggests. A climate risks scorecard ranks Carlyle, Warburg Pincus and KKR as the worst offenders among eight major private equity companies with significant fossil fuel portfolios. The firms continue investing heavily in greenhouse-gas-emitting projects with no adequate plan on transitioning away from oil and gas, according to the analysis by the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund. The eight firms on the scorecard - Carlyle, Blackstone, Warburg Pincus, KKR, Ares, Brookfield/Oaktree, Apollo and TPG - manage a combined $3.6trn in assets, including about $216bn in energy projects.
Blackstone in talks to buy specialist insurer
US private equity firm Blackstone is in exclusive talks about taking control of British specialist insurer Ascot, which provides property and casualty insurance products. Owner CPPIB, Canada’s largest pension fund, paid £1.1bn for Ascot in 2016 and a deal with Blackstone would probably value it at over £2bn.
SEC proposes clearing reforms
The US Securities and Exchange Commission (SEC) has proposed rules designed to boost the use of central clearing in the $24trn Treasury market in a bid to boost its resilience. The proposals would apply to cash Treasury and repurchase agreements traded by a range of firms including broker dealers and hedge funds. The mooted reform comes amid concerns about the Treasury market's ability to function during times of stress, with the SEC and other regulators having been exploring reforms to boost the market's resilience. SEC Chair Gary Gensler said: “These rules would reduce risk across a vital part of our capital markets, both in normal and stress times.”
Citi opens Malaga office
Citigroup has opened a new hub for junior staff in Malaga on Spain's Costa del Sol. Staff in the Malaga office will work eight-hour days with no weekend work for around half of the £86,000 starting salary offered for the same roles in London and New York. Despite the lower salaries, more than 3,000 people have applied for a role in the seaside city. The bank has hired 27 people so far, having said it is looking to fill 30 positions. Analysis suggests investment bankers in London typically work a 65-70 hour week in quiet periods, although this can rise to as many as 100 hours in busy periods.
FCA sanctions 13 principal firms over ARs
The Financial Conduct Authority (FCA) has sanctioned 13 principal firms over the misconduct of an appointed representative (AR) since 2019. A Freedom of Information request by Money Marketing shows the FCA closed eight of these cases without further action as the misconduct was “not sufficiently serious.” In addition, the City watchdog closed four cases due to an alternative outcome, such as a supervisory response. A sanction was imposed in one instance. While the FCA did not impose a fine due to serious financial hardship, it ruled that compensation of £400,000 should be paid. An FCA spokesperson noted that new rules have delivered changes to the AR regime, saying they “are focused on improving principals’ oversight of ARs; and collecting the data we need to help identify and tackle harm and apply greater scrutiny at the gateway.”
MEDIA & ENTERTAINMENT
Google hit with record market abuse fine
Google has lost an appeal against a record fine for abusing its dominance of the Android mobile phone ecosystem. Although the penalty was cut to €4.1bn from €4.3bn, after the General Court in Luxembourg ruled against one of the original infringements, it remains the largest ever handed down by a competition authority in Europe. The case centred on Google limiting competition on Android device manufacturers by requiring them to install its search app and web browser in order to access its Play store.
Law firms accused of greenwashing
A group of lawyers have accused many of the world's biggest law firms of greenwashing and have urged commercial law specialists to do more to fight climate change. The group of 150 prominent lawyers - including 17 King's Counsel - have signed an open letter pointing to the 1.5C maximum increase in global temperature as agreed by the UN Paris agreement on climate change, saying lawyers who support transactions inconsistent with the limit “expose themselves and their clients to substantial legal risk, as well as the real-world risk of catastrophe." The letter also cites a report from the US group Law Students for Climate Accountability which rated large US and UK firms in terms of their greenness. Four of the five magic circle firms received F grades.
House prices up 15.5% year-on-year
Office for National Statistics figures show house prices saw the biggest annual increase in 19 years in the year to the end of July, climbing 15.5% year-on-year. The increase, which in part reflects the stamp duty holiday which was in place last year, compares to a 7.8% annual increase recorded in June. It marks the steepest rise in annual house price inflation since May 2003. The data shows that the average UK house price hit £292,000 in July. Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: "Looking ahead, we expect house prices to fall outright in the second half of the year, given the size of the rise in mortgage rates.” She notes that the rate on a two-year mortgage with a 75% LTV ratio rose to 3.64% in August from 1.64% in January, “and looks set to jump to around 4.5% by the end of the year.” Ms Dickens expects house prices to drop by about 2% over the next six months before starting to recover in 2023.
Naked Wines director leaves three weeks into the job
Online retailer Naked Wines has announced the exit of Pratham Ravi, a non-executive director appointed less than three weeks ago. Mr Ravi, who left with immediate effect, is an analyst with Punch Card Capital, an investment firm that holds a stake of about 10% in Naked, making it one of the firm’s biggest shareholders.
Dunelm reports strong sales
Dunelm has reported a rise in its annual profit and said sales remained robust in the first ten weeks of the new fiscal year. Pre-tax profits surged by just under a third to £209m in the 52 weeks to July 2. The retailer’s total revenues climbed by 16.2% to £1.55bn.
Inflation eases for the first time in a year
Inflation fell for the first time in almost a year last month, with the consumer prices index (CPI) rising by 9.9% in the year to August. This was down from the 10.1% recorded in July and marks the first easing of inflation since September 2021. The Office for National Statistics said a fall in petrol and diesel prices drove the decline, offsetting soaring food costs, with average prices at the supermarket checkout 13.4% higher than a year ago. Paul Dales, chief UK economist at Capital Economics, believes CPI inflation will peak around 11% before the end of the year. He says this means the Bank of England will have to continue raising interest rates, from 1.75% now to 3%, “if not higher.” Kitty Ussher, chief economist at the Institute of Directors, said August’s dip in inflation is “unlikely to alter expectations of a rise in interest rates.”
Consumer confidence slumps
The Consumer Confidence Index from YouGov and the Centre for Economics and Business Research has found that confidence among UK consumers has fallen into negative territory for the first time since June 2020. The index fell by 4.2 points in August from 103.0 to 98.8, the largest decline since the early stages of the pandemic. Both household finance measures – for the last 30 days and the outlook for the next 12 months – dropped by 3.1 points and 10 points, respectively. Every other measure also saw worsening scores, including the outlook for house prices plummeting by 7.2 points to 124.9.
Business support details on the way
Government support for businesses struggling with energy bills may not arrive until November but will be backdated to cover the period from October 1. While Prime Minister Liz Truss last week said firms would get "equivalent support" to the measures announced for households, little detail was given and firms do not yet know how much help they will get. A Government spokesperson said details of the business support scheme will be confirmed next week. They added that the scheme will provide help with October’s energy bills, “including through backdating if necessary." While the support is limited to six months, there will be the option for this to be extend for "vulnerable businesses." Pointing to the lack of detail on what firms would fall into that bracket, Alan Soady of The Federation for Small Business said: "All businesses are vulnerable if they are energy users and let's face it, the problems in the gas market don't look they are going away in six months."