BANKING
Profits at UK's leading banks to hit £33bn
Britain’s four biggest banks are set to report combined annual profits of about £33bn this year thanks to rising interest rates. This comes ahead of Q3 results from HSBC, Lloyds Banking Group, NatWest and Barclays, which are due to be reported next week. City analysts expect Lloyds to unveil third-quarter pre-tax profits of £1.8bn and for its annual profits reach £7.2bn. NatWest is forecast to have earned £1.3bn in the three months to September 30 and £5bn for the year. Barclays, which also has a big business in the US, is estimated to have made pre-tax profits of £1.8bn in Q3, and £6.9bn over the year, while HSBC, which makes most of its money in Asia, is expected to generate annual profits of $16.1bn this year. Last year, bank profits were boosted after they released provisions made during the pandemic in 2020. In 2019, HSBC, Lloyds, NatWest and Barclays made combined pre-tax profits of about £25bn. The Times’ Ben Martin says banks risk a backlash as their results will show their margins have been buoyed by higher interest rates at a time when they have not passed on much of the Bank of England’s increases to savers.
Government mulls bank windfall tax
The Government may look to impose a windfall tax on the UK’s largest banks, with Chancellor Jeremy Hunt said to be considering a temporary levy on profits in a bid to boost public finances. City AM notes that banks have been subjected to an effective windfall tax of 8%, with the bank surcharge coming on top of their corporation tax liabilities. David Postings, chief executive of UK Finance, said: “The banking and finance industry is the engine of the economy, providing jobs and investment up and down the country.” He added: “The industry pays a higher rate of taxation overall than any other sector because of the bank surcharge and the bank levy.” Markets analyst Michael Hewson of CMC Markets says further windfall taxes on the banking sector would be “ludicrous” and further deter international investment into the UK. He said: “This comes across as incredibly short-sighted at a time when the Government should be looking to encourage investment into the UK economy.”
Regulation risks choking up to £62bn of loans, say UK banks
A group of mid-sized banks have written to the Treasury to warn that rules on equity and debt holdings holding back their growth, increasing their costs and affecting their ability to lend.
FINANCIAL SERVICES
Regulatory powers must not be politicised, says UK Finance chief
UK Finance chief David Postings has warned that powers allowing ministers to intervene in regulatory matters must not be “politicised.” With the Government set to grant itself greater oversight of regulators in the Financial Services and Markets Bill, Mr Postings stressed the importance of call-in powers being “used sparingly” and “drawn tightly.” He added: “It should be something that’s very rarely used and not politicised.” Meanwhile, CityUK managing director Emma Reynolds, says the Government needs to tread a fine line between “enhanced regulatory accountability” and the independence of the UK’s financial watchdogs. The Prudential Regulatory Authority recently argued that regulators should not come under “undue pressure to weaken regulatory standards,” while the Financial Conduct Authority has stressed the need for independence and said it was crucial to maintaining the City’s status as a global financial hub.
BoE official: Crypto has ‘serious deficiencies in governance’
Carolyn Wilkins, a member of the Bank of England’s financial policy committee, has warned of deficiencies in governance in the crypto ecosystem, suggesting the sector should learn from regulated finance firms to boost investor confidence. In a speech to the UCL Centre for Blockchain Technologies, she said: “There are a number of serious deficiencies in governance in the crypto ecosystem that need more attention than they are getting.” Ms Wilkins said crypto firms that fail to get their “house in order” risk being overtaken by traditional finance firms with more stable governance structures who can win the trust of investors.
Hargreaves founder criticises chair over 'diabolical' performance
Peter Hargreaves, the co-founder of Hargreaves Lansdown, has accused the group's chairwoman, Deanna Oppenheimer, of overseeing a "diabolical" performance by the investment platform, saying: “I do not know how the chair can carry on.” Mr Hargreaves yesterday opposed the re-election of Ms Oppenheimer and Moni Mannings, the non-executive who chairs the board's remuneration committee. The AGM saw 33.5% of shareholders vote against Ms Oppenheimer and 25.7% opposed Ms Mannings. Mr Hargreaves has also criticised the way the impending departure of chief executive Chris Hill has been handled.
Amazon UK makes move into insurance sales
Amazon has launched a small online insurance store in the UK, with an initial focus on home policies. It has just three insurers on board and plans to add more next year. The Amazon Insurance Store will initially be available to a limited number of Amazon UK account holders, and payment will be taken from the same payment card used for other shopping.
HEALTHCARE
Elliott takes stake in Fresenius
Activist investor Elliott Investment Management has taken a stake in Germany's Fresenius, sparking speculation it might push for a break-up of the diversified healthcare company.
REAL ESTATE
House prices hit new high but growth slows
Figures from the Office for National Statistics suggest that the UK’s housing market is showing signs of slowing down as rising mortgage rates hit demand. House prices rose by 0.9% to a record £295,903 in August, the data shows, with this a 13.6% increase on August 2021. Despite the increase, growth was slower than the 16% seen in the year to July. The South West saw the strongest rise in growth, with prices up 17% in the year to August, while London had the lowest annual growth, at 8.3%. Andrew Montlake of mortgage broker Coreco warned that there is currently “unprecedented uncertainty” in the market. He said: “House prices are set to come under real pressure but the sizeable drops of 10% to 15% that some are predicting are frankly unrealistic,” adding: “'Prices are far more likely to flatline than go through the floor.” Interactive Investor analyst Myron Jobson commented: “There is a clear lag between the latest data and what is happening. More up-to-date house price indices paint a picture of a market running out of steam, with rising mortgage rates and the cost-of-living crisis cooling demand.”
RETAIL
Asos reports steep loss
Asos saw a loss of nearly £32m in the 12 months to August, compared with a profit of £177m the previous year. The firm expects shoppers to cut back further this year as living costs soar. Within the UK, Asos said it "expects a decline in the apparel market over the next 12 months but remains confident in its ability to take share against that backdrop." The retailer said it expected to make a further loss in the six months to the end of February, in part due to having to cut prices to clear stock.
ECONOMY
Inflation rises to 10.1%
Office for National Statistics (ONS) data shows that inflation has risen above 10% for the second time this year, with the consumer prices index rising to 10.1% in September from 9.9% in August. Soaring prices for food and drink were the biggest driver behind the latest cost of living increase, with an annual rise of almost 15%. The Bank of England says inflation could peak at 11% in October. Paul Dales, chief UK economist at Capital Economics, said inflation has not yet reached its peak, with CPI expected to climb to 10.5% in October to account for a 27% rise in energy bills and up to 11% in April following the Government U-turn on its energy price guarantee.
Analysts predict record rate rise
City economists believe the Bank of England will have to hike interest rates by a record 1% after inflation returned to a 40 year high of 10.1%. Paul Dales, chief UK economist at Capital Economics, said a “further strengthening in domestic price pressures despite the clear weakening in the economic outlook” means the Bank will have to launch a 100 basis point rate rise at its November 3 meeting. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, commented that September’s consumer prices figures maintain the pressure on the Monetary Policy Committee to “hike the Bank Rate substantially … despite the developing recession.”
Bank of England not briefed on mini-Budget
Sir Jon Cunliffe, the Bank of England’s deputy governor of financial stability, has revealed that Prime Minister Liz Truss and former Chancellor Kwasi Kwarteng did not brief the Bank on the content of last month’s controversial mini-Budget. Sir Jon says the Bank could have advised the Government on the possible market reaction, with the negative response to the plans prompting the Bank to step in to buy government debt.