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Daily News Roundup: Thursday, 3rd March 2022

Posted: 3rd March 2022

BANKING

EU delivers Swift blow to Russian banks

The EU is excluding seven Russian banks from Swift, the dominant messaging system underpinning global financial transactions. The EU, the US, Britain and Canada had announced that certain Russian banks would be blocked but now the EU has detailed that VTB, Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB will each be given 10 days to wind-down their Swift operations. Swift said in a statement that it would disconnect the seven Russian banks from their network on March 12, as required by EU regulations, with a senior official saying the banks were chosen based on their connections to the Russian state, with public banks already sanctioned after Russia's annexation of Crimea in 2014. Sberbank, Russia's largest lender, and Gazprombank were not included as they are the main channels for payments for Russian oil and gas, which EU countries are still buying. They are, however, subject to other measures.

YBS profits almost double to £320m

Yorkshire Building Society has seen pre-tax profit nearly double to £320m, while its operating profit jumped to £297.3m. YBS provided just over 75,000 mortgages during the year, while mortgage balances increased to £41.9bn. Saving balances increased to a record £35.5bn, up from £33.4bn in 2020. Core operating profit rose from £170.5m to £297.3m over the past year. Stephen White, interim chief executive of YBS, said: “I am delighted to report that in a challenging year for the economy when many members and customers have faced very difficult circumstances we have been able to help more people with their key financial needs than ever before.”

INTERNATIONAL

Banks act on Russian restrictions

Amid an unprecedented level of sanctions, global banks are taking a dim view of business with Russian entities and ties to the country. Societe Generale and Credit Suisse have stopped financing commodities trading from Russia, while State Bank of India will not process transactions involving Russian entities subject to international sanctions. Simon MacAdam, senior global economist at Capital Economics, said: “In time, other banks may well 'self-sanction' given the risks involved.” Analysis of exposure to Russia so far disclosed by Western banks shows US banks have an exposure of $14.7bn, and Italian, French and Austrian banks' combined have an exposure of over $42.5bn.

Fed boss plans to raise rates

Federal Reserve chair Jerome Powell has indicted that an interest rate increase is on the horizon. Telling the House Financial Services Committee he's in favour of a 0.25 point increase in an effort to tackle the surging cost of living, he said: “I think it is appropriate for us to move ahead. Inflation is too high.” In January, the increase in the cost of living jumped by 7.5% when compared with a year earlier. Analysts expect the central bank to action an increase this month, with this set to be the first rise since 2018.

AVIATION

Ryanair boss: Air fares set to climb

Ryanair boss Michael O'Leary says air fares this summer will be "materially higher" due to soaring oil prices and the impact of the pandemic. Noting that the impact of the Ukraine crisis on oil prices was "steep and severe", he said Ryanair was largely insulated due to fuel-buying agreements until 2023 that cap the cost for 80% of its fuel, but noted that price rises on the remaining 20% mean the airline expects to pay an extra £42m. He added that a 10% reduction in short-haul capacity in Europe will also drive fares higher. Mr O'Leary predicted that air fares would be 10% to 15% higher than pre-Covid in the June through September period. Air-France KLM last month warned of airlines pushing up prices as they face rising overheads.

Airbus pulls out of Russia

Airbus has joined the growing list of businesses cutting ties with Russia, with the manufacturer saying it has stopped support and supply of spare parts for Russia's aviation industry “in line with international sanctions”. Rival Boeing had already suspended "major operations" in Moscow and parts, maintenance and technical support services for Russian airlines.

CONSTRUCTION

Persimmon cashes in as house prices climb

Persimmon’s pre-tax profits increased by more than £180m over the past year, as new home completions and average selling prices rose. The housebuilder completed 14,551 homes in the year to 31 December, up from 13,575 in 2020. Revenue inched higher from £3.33bn in 2020 to £3.61bn last year, as Persimmon reaped the rewards of rising house prices.

FINANCIAL SERVICES

FCA cracks down on ‘excessive’ claim management fees

The Financial Conduct Authority is cracking down on claim management firms charging excessive fees to consumers owed compensation. The regulator will ensure that the maximum amount consumers can be charged will depend on how much compensation they receive. Under the new rules, if consumers receive a redress amount below £1,500, for instance, they can only be charged a maximum of 30% of their claim. If someone receives a payout greater than £50,000 they can only be charged 15% of the total value of their claim. The changes are expected to save consumers £9.6m a year according to the FCA. Claim Management Companies will also be required to tell consumers how fees will be calculated before they enter into a contract and make sure that they are aware of free routes to seek redress.

Withdrawals blocked on £2.6bn of funds

At least 24 funds with exposure to Russia have suspended withdrawals, locking in £2.64bn of investor cash. The biggest is the £472m Pictet-Russian Equities fund. It was worth £757m in January. BlackRock BGF Emerging Markets fund is down from £519m to £224m. JPMorgan, Liontrust, HSBC, Amundi and BNP Paribas have also suspended funds. UK investors have seen the value of holdings in funds with at least 5% exposure to Russia halve in two weeks from £28bn to £14bn, according to analysis by Interactive Investor. Meanwhile, the Baring Emerging EMEA Opportunities investment trust has valued its Russian assets at zero due to “limitations in the ability to sell Russian securities’’. Elsewhere, pension fund Nest has ordered a complete boycott of Russian investment, telling its fund managers to sell all existing Russian shares and government bonds as soon as possible and pledging not to buy any more.

Aviva rolls out bumper dividend for shareholders

Aviva shareholders are set to share a bumper payout of £4.75bn, as the British insurer tops up an existing £1bn share buyback scheme. Aviva, which planned to dole out at least £4bn to shareholders for the past year, saw its adjusted operating profit fall 10% to £1.63bn after a softer performance across its UK life business. The group's total operating profit for 2021 came in at £2.26bn, against £3.16bn a year earlier. Aviva announced a total dividend of 22.05p a share, up from 21p, with a 40% hike in its 2022 dividend forecast. Meanwhile, CEO Amanda Blanc said Aviva would divest all investments in Russia held by its asset management arm as soon as possible following the invasion of Ukraine, noting that exposure was “very minimal” at less than 0.1%

Overhauling EU’s financial services rulebook will not be a 'big bang'

The City Minister has said that overhauling the EU’s financial services rulebook post-Brexit will not be a “big bang” moment and could take several years. John Glen told Westminster’s Treasury Select Committee that the push to reform EU regulation will be an “iterative” process and that any intervention will not “overnight change the competitiveness of financial services” in the UK. The UK’s regulatory overhaul will try to free up insurance firms to invest more in the UK, attract more tech start-ups to float in London and make it easier for firms to raise capital.

CBAM appoints Reynolds

Close Brothers has announced that ex-Standard Life Aberdeen executive Eddy Reynolds will take over as chief executive of its asset management business. Adrian Sainsbury, group chief executive at Close Brothers, said Mr Reynolds, a former head of investment at Lloyds Private Bank, is the man to lead the Close Brothers Asset Management through the next stage of its development.

REAL ESTATE

Average house price hits £260k

House prices have risen above £260,000 for the first time, new figures from Nationwide show. The average price for a home has risen by £29,162 over the last year, hitting £260,230 in February. This marks the largest ever annual increase in cash terms recorded on Nationwide’s monthly index, which launched in 1991. Annual house price growth climbed to 12.6% in February, up from 11.2% in January, with this the seventh consecutive monthly increase. The average price of a UK property is now £44,138 higher than the pre-pandemic average logged in February 2020. The report also highlights that the price of a typical home is currently about 6.7 times average earnings, up from a ratio of 5.8 in 2019. Robert Gardner, Nationwide’s chief economist, said: “The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation,” adding that the strength of the market is “particularly noteworthy since the squeeze on household incomes has led to a significant weakening of consumer confidence.”

Firethorn sells logistics assets to Cain

Firethorn Trust has agreed to sell its UK logistics portfolio to investment firm Cain International in a deal worth £550m. The portfolio includes seven sites in the UK, totalling 3.25m sq ft across 22 assets, including two newly built developments. The sale also includes five consented land sites that are on set for completion in 2022 and early 2023. The transaction is scheduled for completion at the end of the first quarter of this financial year.

SPORT

Abramovich puts Chelsea up for sale

Chelsea owner Roman Abramovich says he is planning to sell the club. Having said on Saturday he would give "stewardship and care" of Chelsea to its foundation trustees following Russia's invasion of Ukraine, he has now confirmed that he has made the "incredibly difficult decision" to offload the club. Mr Abramovich, who is alleged to have strong ties to Russian President Vladimir Putin, will not ask for his £1.5bn loan to the club to be repaid and will donate all net proceeds to the victims of the war in Ukraine.

ECONOMY

Analysts: Ukraine crisis will fuel inflation and hit GDP

Analysts have warned that uncertainty caused by Russia’s invasion of Ukraine is set to hit the UK economy. While Pantheon Macroeconomics had previously forecast that inflation would rise to 7.7% in April and drop back to 6% in October, it now expects inflation to peak at 8.2% in April, and still be at 7.5% in October. It has also forecast that real earnings will see a drop of 2.2% in 2021, with this 0.4% higher than its pre-invasion estimate. Pantheon believes the increase in gas prices caused by Russia’s attack will see the price cap rise by a further 33% in October, having previously anticipated an 11% hike. The firm has also downgraded its GDP growth forecast to 1.5% for both this year and 2023. Elsewhere, Goldman Sachs says climbing energy prices amid the fallout of the invasion of Ukraine could see a 55% hike in the energy price cap and inflation in Britain peaking at 9.5%. Goldman also said the Bank of England may send interest rates to 1.75% by November. Meanwhile, JPMorgan has warned that soaring inflation will cause economic growth to “slow to a crawl”.

Bank could rein in rate hikes despite inflation fears

Experts believe the Bank of England may scale back interest rate rises due to the conflict in Ukraine, with analysts at ING saying there has been a “massive” re-pricing of interest rates in the UK, with markets now betting on rates rising from 0.5% to 1.5% by the end of the year. This is a significant dip on the previous expectation of a peak of more than 2.25%. This comes despite economists warning that the invasion of Ukraine will see inflation surge to around 8% in April. ING’s analysis said: “Despite the surge in European natural gas prices and what that means for UK inflation – we have that peaking near 8% now not 7% – the Bank of England tightening cycle has suffered one of the largest re-pricings lower.” Economist Samuel Tombs at Pantheon Macroeconomics believes the Bank will deliver just two more rate rises this year, saying the firm has “become more confident in our call” that the Monetary Policy Committee “will only manage to raise Bank Rate to 1% this year, with 25 basis point hikes in March and May, followed by a long pause.”

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