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Daily News Roundup: Thursday, 4th November 2021

Posted: 4th November 2021

BANKING

PM defends bankers’ tax contributions

Boris Johnson has defended the contribution of bankers to the economy after a Budget policy to cut the banking surcharge in April 2023 was criticised. Labour’s deputy leader Angela Rayner noted that while the move is expected to save banks £4bn in taxes over five years, Resolution Foundation calculations show households are set to see taxes climb £3,000 by 2026. Saying that her constituents are “feeling the pinch” and arguing that the Budget “did nothing to help them”, she asked the Prime Minister to detail the tax cut given to banks. Mr Johnson insisted banks and bankers “are paying far more proportionally as a result of our tax measures to cover the cost of the NHS”, adding that 50% of the £36bn comes from “the 14% of the richest in this country, overwhelmingly from the banks and financial services industry who can pay the most.”

Bankers the environmentalists of today - Sharma

Cabinet Minister and COP26 president Alok Sharma has likened bankers to environmentalists due to their investment in green projects. Referencing Daniel Hooper, an activist known as Swampy who became a household name in the 90s, Mr Sharma said Swampy had been the main face of climate action in the UK, “But today the Swampys of the world are all around us, in boardrooms, in government departments, in multilateral development banks and trading floors all around the world.” This came as Chancellor Rishi Sunak announced plans to force Britain's biggest financial institutions and listed companies to publish plans on how they will transition to net zero. NatWest is leading the way, with chief executive Alison Rose committing to not lend any new money to coal projects and to phase out all its current loans to coal in the UK by 2024 and globally by the end of the decade. The bank will continue to work with oil and gas companies, as long as they have a transition plan in place by the end of this year to move towards a greener future. Ms Rose said bankers’ bonuses will be linked to green targets, saying NatWest has made climate transition and targets “a key part of our executive remuneration”.

Crypto market worth more than 12 largest banks

The price of several leading cryptocurrencies have hit record highs, with the surge meaning the overall crypto market is now worth more than the top dozen of the world's largest banks. All-time highs from Ethereum and Solana helped push the combined market cap of all cryptocurrencies above $2.75trn for the first time. Analysis shows that, combined, the top 12 biggest banks around the globe have an overall market cap of just under $2.7trn. Following its latest price high, Ethereum now ranks above every leading global bank in terms of market cap, as well as other finance firms like Mastercard and Visa.

PRIVATE EQUITY

Private equity firms eye Inmarsat exit

Apax Partners and Warburg Pincus are reportedly considering an exit from their investment in satellite communications group Inmarsat. Sources say the firms, who took Inmarsat private in 2019, have held early discussions about a possible sale after receiving approaches from potential suitors.

INTERNATIONAL

Commonwealth Bank to offer cryptocurrency trading

Commonwealth Bank will allow its customers to buy and sell cryptocurrency through its app, in the first such move by a major Australian bank. CBA has partnered with US-based crypto exchange Gemini and blockchain analysis firm Chainalysis to offer the service to its 6.5m CommBank app users. They will be able to buy up to 10 crypto assets including bitcoin, Ethereum and Litecoin.

SBI reports record quarterly profit

State Bank of India, the country's largest lender by assets, has reported a record quarterly profit as provisions for bad loans more than halved. SBI's net profit rose 66.7% to 76.27bn rupees for the three months to the end of September, from 45.74bn rupees a year earlier. Provisions for bad loans slid 52%, while the bank's gross bad loan ratio, a measure of asset quality, fell to 4.90% from 5.32% in the previous quarter.

AUTOMOTIVE

BMW profits hit €3.4bn

BMW saw profits before tax rise to €3.4bn between July and September, a 38% increase compared with 2020 and a 52% increase on 2019. The increase came despite a 12% year-on-year decline in overall vehicle sales to 593,000, with the automaker switching production to higher-margin cars. Revenues rose 4.5% to €27bn.

FINANCIAL SERVICES

LSE CEO expects London to keep EU clearing role

London Stock Exchange Group CEO David Schwimmer expects the European Union will continue to allow its banks to keep clearing trades through London. He said the bourse is engaging with the EU and clients to address one of the biggest outstanding issues for cross-border markets in the wake of Brexit. At present, customers inside the bloc can use LCH and other UK clearing houses under a temporary waiver that expires next July. “My expectation is that the European Commission will find a way to continue allowing EU-domiciled member banks and other institutions to continue to access LCH,” Mr Schwimmer said in an interview at the COP26 climate summit in Glasgow.

FCA to introduce ESG rules for advisers 'in due course'

The Financial Conduct Authority (FCA) is set to require intermediaries to take into account sustainability issues when advising clients. Europe's Sustainable Finance Disclosure Regulation, which came into force at the start of 2021, already makes sustainability-related demands of advisers. However, its rules were not onshored prior to Brexit. The FCA is now introducing its own Sustainability Disclosure Requirements for firms involved in investment management and decision-making processes.

REAL ESTATE

Average property price passes £250k

House prices have hit record highs, with the average property price passing the quarter of a million pounds mark for the first time. Nationwide’s House Price Index shows that the typical house price is now £250,011. This comes after values rose by 0.7% in October, up from 0.2% in September. Year-on-year, prices were up 9.9%, with this down slightly on the 10% recorded in September. The analysis shows there were 72,645 mortgage applications in September. Nationwide notes that possible base rate hikes from the Bank of England are pushing up mortgage rates, saying this may dent the property market. Robert Gardner, Nationwide's chief economist, said demand for homes has remained strong, despite the stamp duty holiday coming to an end on September 30. “However, a number of factors suggest the pace of activity may slow. Consumer confidence has weakened in recent months”, he warned. Suggesting that the outlook was “extremely uncertain,” he added: “Even if wider economic conditions continue to improve, rising interest rates may exert a cooling influence on the market, though the impact on existing borrowers is likely to be modest.”

Ultra-low mortgage deals vanish as Bank mulls rate rethink

The number of ultra-low mortgage rates has dipped amid speculation and debate over whether the Bank of England base rate will increase soon. Research by financial information website Defaqto shows that on October 25 there were 82 fixed-rate mortgages available at 0.84% to 0.99% but by November 2, there were just 22 deals available. The study also shows that the average two-year fixed mortgage rate for a first-time buyer putting down a 5% deposit was 2.45% last week but now it stands at 2.69%.

ECONOMY

MPC to weigh up rate rise

The Bank of England is mulling a rise in interest rates, with the rate-setting panel meeting today to weigh up whether an increase is needed to prevent inflation from soaring higher. Andrew Montlake, managing director of mortgage broker Coreco, believes the Bank’s Monetary Policy Committee will be “keen to avoid anything that might derail a recovery on one side, or hold off too long to be behind the curve on the other leading to faster, sharper rises.” He added: “Whilst these decisions remain on a knife-edge, one thing we do know is that we should all be preparing for rate rises sooner rather than later.” Strategists at Bank of America said that they expected a six-to-three vote by MPC rate-setters in favour of a 15-basis-point interest rate rise. The Times’ shadow MPC, which includes former rate-setters, believes the Bank should move to tackle the threat of inflation by raising interest rates, voting eight to one for an immediate increase. Seven members want a 15-basis-point rise to 0.25%, while Bronwyn Curtis, a non-executive director at the Office for Budget Responsibility, has called for a 25-basis-point increase.

Services sector activity climbs in October

Monthly data from the IHS Markit/CIPS Services PMI has revealed a stronger-than-expected rise in activity in Britain’s dominant services sector during October. According to the IHS Markit/Cips survey of 650 companies in the services sector, business and consumer spending increased last month, while operating expenses and the prices charged by services firms rose at the steepest rate since records began in 1996. The purchasing managers’ index for October came in at 59.1, up from 55.4 in September in a measure where anything above 50 points indicates activity is rising. About 30% of the survey panel reported an increase in employment numbers during October, while only 13% signalled a reduction.

Rate rise will add £900m for floating rate debt interest

If the Bank of England’s Monetary Policy Committee (MPC) opts to increase interest rates today, UK households will face an immediate £900m increase in interest payments for floating rate debt, such as credit cards and floating rate mortgages, according to analysis. The reports calculates that households will pay a combined £1.9bn extra on their mortgage costs if the base rate increases to 0.5%.

OTHER

Disposable income growth at record low

Analysis by the Resolution Foundation think-tank suggests the current government will oversee the worst rate of disposable household income growth on record. Figures show that people will only receive a 0.5% increase in their real incomes over the course of the current parliament, which is scheduled to end in 2024. In this period, average annual household incomes will expand by 0.1%. Noting the impact of economic shocks such as the financial crisis and the pandemic, Adam Corlett, principal economist at the Resolution Foundation, comments: “The result of having so many crises in such quick succession, without any strong sustained growth periods, means that the 15 years from 2007 to 2022 are forecast to be the worst on record for household income growth.”

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