BANKING
UK could target interest on reserves to save £10bn
Sentiment towards the UK’s biggest banks soured on Wednesday following rumours that the UK Government could scrap the interest paid to banks on certain commercial deposits held at the Bank of England. Assuming a benchmark interest rate at 2.5%, the move could save £10bn every year, according to Bloomberg. Gerard Lyons, an external economic adviser to Liz Truss, said she and the Chancellor were aware of the option but that did not mean they were going to make it policy. Bloomberg explains that once the BoE’s benchmark interest rate hits around 2.25%, the interest paid on reserves will be greater than the income from gilts and, under the QE indemnity with the Treasury, the Government will start transferring funds to the BoE. Those taxpayer funds will in turn be passed to commercial lenders. The Governor of the Bank of France recently discussed the possibility of a similar move. Jonathan Pierce at Numis estimates that targeting the £450bn of reserves would slash UK commercial bank profits by 25%. Reports of a possible move on interest on reserves sent UK bank stocks down on Wednesday, with NatWest Group down 2.9%, Lloyds Banking Group down 1.8% and Barclays down 2.4%.
Lib Dems rue tax cuts for banks
Research by the House of Commons Library commissioned by the Liberal Democrats estimates that holding corporation tax at 19% and cutting the banking surcharge from 8% to 3% will deliver tax cuts of £6.3bn over the next two years for big banks. “It is shameful that the Conservatives are choosing to cut taxes for the big banks, while leaving families and pensioners still struggling to pay their bills this winter,” the Liberal Democrat leader, Ed Davey, said. A spokesperson for City lobby group UK Finance said: “The banking and finance sector is a major source of revenue for the government, delivering investment across the country and employing hundreds of thousands of people, the majority of which are outside of London.”
Lenders pre-empt rate rise with increased mortgage costs
Banks and building societies have rolled out a raft of mortgage rate rises ahead of an anticipated 0.75 percentage point increase to the Bank Rate today. Lewis Shaw, of broker Shaw Financial Services, said: "Borrowers should buckle up. The writing is on the wall for a significant Bank Rate rise and lenders have pre-emptively hiked rates, as they don't want to get caught short scrambling to re-price their deals."
Citigroup to wind down UK retail bank
Citigroup said on Wednesday that it would be closing its UK retail bank to focus on its wealthiest customers, who will be invited to transition to its private bank. The move comes as the US lender attempts to streamline its international operations.
INTERNATIONAL
US interest rates hit 14-year high
The US Federal Reserve has raised interest rates by 75 basis points for the third time in three months, bringing the Fed funds rate to 3-3.25% as the central bank continues its fight against rising inflation. Fed chair Jerome Powell warned of more pain to come citing rising joblessness and the need for a correction in the housing market so supply and demand were better aligned. The Fed’s rate-setting committee said that it anticipates ongoing rate increases to bring inflation down to its target range of 2%. Responding to the move, JPMorgan Chase, Citigroup and Wells Fargo said they will hike their prime lending rates by 75 basis points from Thursday.
US bank chiefs warn of China exit if Taiwan is attacked
The CEOs of major US banks including JPMorgan Chase, Bank of America and Citigroup said they will pull out of China if the US government called for it in the event of an attack on Taiwan by Beijing. They made the pledge during an appearance in front of Congress when Republican congressman Blaine Luetkemeyer asked how they would respond were China to invade Taiwan. The bank chiefs also endorsed the Federal Reserve’s latest rate hike as a means to tame soaring inflation, while acknowledging there will be pain ahead.
US banks threaten to leave Carney’s green alliance over legal risks
JPMorgan, Morgan Stanley and Bank of America have threatened to leave Mark Carney’s Financial Alliance for Net Zero due to concerns about the legal risks to the banks from poor ESG reporting.
Lebanon’s banks to close ‘indefinitely’ after heists by angry depositors
Lebanon’s banks will remain closed “indefinitely” after the state failed to provide them with security assurances - they have been subject to a spate of armed robberies by depositors trying to access to their savings.
FINANCIAL SERVICES
Liz Truss pledges to make UK the best place to invest
Speaking during a roundtable of business leaders in New York on Wednesday, Liz Truss promised to deliver “lower, simpler taxes” to drive investment into the UK. The Prime Minister declared that her plans will “make us a better place to invest and be unashamedly pro-business” and make the City “the most competitive place for financial services in the world”. Speaking with representatives from Blackrock, Bain Capital and JP Morgan among others, Ms Truss said that aside from tax cuts, the Chancellor will on Friday announce a series of supply side reforms to make the UK economy more productive over the long-term. In areas like financial services, Ms Truss said Kwasi Kwarteng would be looking at dealing with Solvency II and MiFID regulations as a means of boosting investment into infrastructure and small businesses.
FCA proposes risk-sharing scheme for tower block insurers
The Financial Conduct Authority (FCA) has released a report recommending improvements in the protections provided by insurers to people living in blocks of flats. The regulator began a review after the Grenfell Tower fire sent the cost of insurance up for leaseholders and some insurers left the market. Sheldon Mills, executive director of consumers and competition at the FCA, said: “Since the Grenfell tragedy, hundreds of thousands of leaseholders have had to endure the difficulties of living in buildings with known fire safety issues and these problems have been made worse by increases in the cost of their insurance. We expect the insurance industry to work quickly with us and Government to develop solutions to this issue, including developing pooling arrangements and reducing commission, that will make affordable insurance cover more widely available.”
FCA to impose £50m fine on Link Group over Woodford failings
The Financial Conduct Authority has issued Link Fund Solutions with a £50m penalty for its handling of the Woodford Equity Income fund. Link has 14 days to respond and the fine could be discounted for prompt settlement. The fine comes just a week after the regulator confirmed Link could have to pay up to £306m in redress to investors of the fund, which collapsed in 2019. Meanwhile, Link is facing a takeover bid from software company, Dye & Durham. The FCA last week warned the Canadian firm that its takeover would be blocked unless it promised to cover any “restitution and/or redress payments” which Link was ordered to pay.
MEDIA & ENTERTAINMENT
French tycoon builds £750m stake in Vodafone
The French telecoms tycoon Xavier Niel has acquired a stake worth about £750m in Vodafone bringing his interest in the company to 2.5%. Niel’s investment vehicle Atlas Investissement said that Vodafone was “an attractive investment opportunity” because of the “quality of its assets portfolio and the solid underlying trends in the global telecommunications sector”.
RETAIL
JD Sports agrees £6.4m exit deal with Cowgill
JD Sports has agreed to pay former boss Peter Cowgill £3.5m to prevent him from working for rivals or soliciting its employees. He will receive a further £2m to advise leadership over the next three years. Mr Cowgill will also be paid a £906,000 salary for his year-long notice period, and will be eligible for an annual bonus. Cowgill ran the sports retailer from 2004 until his ousting in May this year.
ECONOMY
IFS: PM's economic plans to add £100bn-a-year to public borrowing
A joint report by the Institute for Fiscal Studies and Citi, the US investment bank, claims that the tax cuts planned by Liz Truss combined with increased borrowing at high interest rates would put Britain’s borrowing on an “unsustainable” path. Even after the Government stops subsidising household energy bills, public debt would still rise as a share of national income, the report added. The analysis comes as new figures show the public sector borrowed £11.8bn in August, higher than City forecasts of £8.8bn and almost twice the amount estimated by the OBR earlier this year. Debt interest payments, linked to higher inflation, were £8.2bn, far higher than the £4.9bn expected, while other public spending also exceeded forecasts. The data sent the pound down 0.3% to a 37-year low of $1.1339. Commenting on the figures, Kwasi Kwarteng, the Chancellor, said: “Our priority is to grow the economy and improve living standards for everyone - with strong economic growth and sustainable public finances going hand in hand. I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses, just as we did during the pandemic.”