Metro returns to profit
Metro Bank's third-quarter report showed that deposits were “broadly flat” at £16.4bn but the bank returned to profit in September. Q3 also saw loans increase 4% to £12.8bn. While Metro set aside another £10m for loans expected to turn sour, it stressed there has been no worsening of the "early warning indicators" that borrowers are in distress. “I am really pleased to see the business return to profit in September on both an underlying and statutory basis,” said CEO Daniel Frumkin, adding: “This performance reflects our tight control of both costs and risk, close management of our deposit franchise and lending channels, and the supportive prevailing interest rate environment, all of which help build a balance sheet that delivers sufficient margin to cover costs.”
Barclays targets businesses over unpaid Covid loans
Barclays, which was the biggest lender under the Government’s Bounce Back Loan Scheme (BBLS), is trying to shut down almost 100 companies over unpaid loans. The bank has sought winding up petitions against 97 businesses since September. These are legal orders that creditors can use to shut down businesses that owe money. Analysis shows that more than 2,400 petitions have passed through courts since the beginning of the year – with this around three times the total for all of 2021. The Department for Business, Energy and Industrial Strategy has estimated that around 11% of all loans issued under the BBLS were made to ineligible borrowers. Of the £10bn in BBLS loans issued by Barclays, the bank estimates that at least £250m worth were fraudulent.
Expert: Banks too slow in lowering mortgage deals
Banks have been criticised for being too slow to lower rates on fixed-rate mortgages and offer cheaper deals. While banks rushed to increase rates in the aftermath of the controversial mini-Budget in September, the rates have remained high despite the market outlook improving and forecasts that interest rates will not rise as steeply as had been feared. Ray Boulger of brokers John Charcol has told MPs on the Treasury Committee that falls in mortgage rates have been “relatively small,” adding that “there’s scope for them to fall further.” He added: “One of the issues is that lenders don’t want to set rates lower too quickly because they are worried about getting too many applications and not being able to keep up service standards.” Mr Boulger also suggested that banks wanted to offer rates that were “competitive but not too competitive.”
HBOS fraud review delayed
A review into whether executives at Lloyds Banking Group covered up a fraud has been held up for a fifth time. Dame Linda Dobbs, who is leading the investigation into the bank’s handling of the HBOS Reading scandal, said she has experienced “significant delays in concluding interviews with a number of important witnesses.” This, she added, is having a “material impact” on the completion of her review. The former High Court judge was appointed in April 2017, with it initially expected that the review would take a matter of months. She had hoped to complete witness interviews this summer but has now revealed that interviews would “run into early next year.” She did not provide guidance on when she hoped to complete the review, warning that “there will still be a significant amount of work required” to finish the process once everyone has been spoken to.
US interest rates rise again
The US central bank has increased interest rates by 0.75 percentage points as it looks to battle inflation. The increase takes the key benchmark rate to a target range of 3.75% to 4% and marks the fourth consecutive interest rate increase and the sixth rise this year. Federal Reserve chair Jay Powell warned US interest rates would peak at a higher level than expected, warning that the Fed had “some ways to go” in its drive to tackle soaring prices. The Fed said officials remain “highly attentive to inflation risks.”
ECB warns banks of capital hit if they fail to tackle climate risk
The European Central Bank has identified areas where banks fall short in addressing financial risks from climate change. Those that fail to make changes will see higher capital requirements and fines.
Britain to rein in shadow banking
Britain will look to tighten oversight of the shadow banking sector, with regulators potentially requiring permanently higher liquidity buffers for Liability Driven Investment (LDI) funds – as well as regular stress tests. The Bank of England (BoE) recently called for "effective policy outcomes" from the G20's Financial Stability Board (FSB) to improve resilience and remediate "structural vulnerabilities" in non-bank financial intermediaries such as investment funds, insurers and pension schemes. The FSB is due to publish a report on vulnerabilities in non-banks along with policy proposals on November 10, while Sarah Breeden, the BoE’s executive director for financial stability, will detail the Bank's position on November 7. It is noted that the Financial Conduct Authority regulates UK-based managers of LDI funds and The Pensions Regulator regulates pension schemes. While there are no liquidity rules for LDI funds in Britain, the BoE recently said it would work with both regulators to ensure "strengthened standards are put in place".
Pension scheme funding levels hit 103%
UK defined benefit pension schemes' aggregate funding level rose by 1% to 103% in October, according to consultancy XPS. While the Bank of England had to step in to stabilise UK Government bonds when pension schemes faced a short-term cash crunch on derivatives positions in late September, a sharp rise in gilt yields has improved schemes' long-term funding positions. Felix Currell, senior investment consultant at XPS, said that while a “small minority” of schemes will have been forced into choosing between maintaining hedging levels and targeting investment returns, improvements in funding positions mean many schemes are in “a fantastic position to achieve their long-term objectives.”
Advisers: Cost concerns prompt clients to cancel cover
Almost a fifth of financial advisers have been contacted by clients about reducing or cancelling their protection policies amid the cost-of-living crisis. A poll on the current economic climate saw 18% of advisers say they had been contacted by clients wishing to reduce their cover. The survey also saw 62% say they were actively reviewing their clients’ outgoings, while only 30% said they had a strategy to convince existing clients not to cancel or reduce their premiums. When asked to identify the key concern among clients, the cost-of-living came out on top with 58%, followed by rising mortgage interest rates at 23%.
Traders fail in court challenge
A group of traders who saw a $700m windfall from oil futures amid pandemic-driven chaos in the markets have lost a legal battle to stop regulators gaining access to their records. The Commodity Futures Trading Commission (CFTC) is investigating the activities of traders at Vega Capital London, with the Financial Conduct Authority (FCA) helping the US regulator with its inquiry. The UK watchdog ordered 11 traders to hand over their records but the group of traders dubbed the ‘Essex Boys’ sought approval for a judicial review of the City watchdog’s decision to assist the CFTC. The request was rejected by the High Court in May and the Court of Appeal yesterday refused them permission for a judicial review. Mark Steward, the FCA’s executive director of enforcement and market oversight, said it “will not permit subjects of international investigations who are located in the UK to hide behind unmeritorious claims or to delay international investigations through abuse of legitimate remedies.”
GSK sees increased revenue and profit
Annual profit guidance at GSK has been raised for the second time in a row after it unveiled another record quarter for its new shingles vaccine. The drugs group’s revenue rose 9% to £7.8bn year-on-year in Q3, lifting its adjusted operating profit by 4% to £2.6bn.
MPs hear buy-to-let warnings
The Treasury Committee has heard that renters and buy-to-let investors could be hit by rising mortgage rates, with experts highlighting the possible impact on the availability of rental properties. Chris Rhodes, chief finance officer at Nationwide Building Society, said that in the current climate: “It’s marginally profitable for new buy-to-let investors if not loss making to take on board a new property,” adding concerns over the sustainability of the buy-to-let market in the medium term. Ray Boulger of broker John Charcol suggested that the buy-to-let market is likely to see “a lot more stress than the residential market,” while Joanna Elson, chief executive of the Money Advice Trust, added that “the impact of that is on renters.”
Food inflation hits record high
Figures from the British Retail Consortium (BRC)-Nielsen Shop Price Index show that food inflation hit a record 11.6% in October. This marks an increase on the 10.6% year-on-year rise recorded in September and exceeds the three-month average of 9.7%. The increase in food inflation has been driven by the price of fresh food, which is 13.3% more expensive than last October – with this up from 12.1% in September. Non-food inflation at supermarkets has risen to 4.1%, compared to 3.3% in September. Overall, shops increased prices by 6.6% in the 12 months to October - the highest level since records began in 2005.
Aldi named UK’s cheapest supermarket
Aldi has been named as the UK’s cheapest supermarket by consumer group Which? An average basket of groceries and other essentials at Aldi came in at £75.79. This was ahead of Lidl, with £77.68, and Asda at £84.98. Tesco’s basket cost £86.21, Sainsbury’s £86.36, Morrisons £92.72 and Ocado £93.99. Waitrose proved to be the most expensive supermarket – with a basket of 48 general items coming to £101.17.
Next sales climb 0.4%
Next’s full-price sales rose by 0.4% in the thirteen weeks to October 29 and the company says it is on course to meet its target of £840m in profit for the full year. Next delivered particularly strong sales in the last five weeks of the quarter when revenues rose by 1.4%. However October, the last month of Next's third quarter, saw sales drop 0.7% and the retailer expects them to continue to fall in Q4.
PM prepares tax grab from energy firms
The Prime Minister and Chancellor are planning to extend windfall taxes on oil and gas companies as they look to fill a £50bn hole in public finances. Rishi Sunak and Jeremy Hunt plan to increase revenues from the windfall tax by increasing the rate from 25% to 30%, extending the levy until 2028 and expanding the scheme to cover electricity generators. It has been estimated that expanding and extending the levy would increase revenues from the existing tax, which is due to end by 2026, by 50% to £40bn. Officials have faced calls to increase the windfall tax on the back of energy firms posting huge Q3 profits, with BP’s profits doubling to £7.1bn and Shell’s more than doubling to £8.2bn. Mr Hunt is set to submit key proposals to the Office for Budget Responsibility this week, giving the official forecaster time to make its independent assessment of the plans ahead of his Autumn Statement. The Chancellor is understood to be targeting a level mix of tax rises and spending cuts as he attempts to balance the nation’s books.
Costs hit firms with DB pension schemes
Analysis shows that UK-listed companies with a defined benefit pension scheme issued 18 profit warnings in the third quarter. This marks a 38% jump on a year ago, with the increase attributed to rising costs and overheads. Of the 1,217 UK-registered listed companies, 258 sponsor a UK defined benefit pension scheme.