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Daily News Roundup: Thursday 5th September 2019

Posted: 5th September 2019

BANKING

Banks to set aside more for PPI redress

RBS has warned that an unprecedented number of PPI claims in the run up to the August deadline could cost it up to an extra £900m. The lender said it expects to take an additional charge of between £600m and £900m relating to the mis-selling of PPI. RBS had already set aside £5.3bn to the end of June for PPI claims, £4.9bn of which it had spent. CYBG, which owns Clydesdale Bank, Yorkshire Bank and Virgin Money, also said they had seen a rush in claims ahead of the August deadline and warned that working out the final bill could take "several months". Investec analyst Ian Gordon previously estimated that UK banks would be forced to top up their PPI claims pot by just under £1bn once the deadline had passed, warning that it could take until the end of the year "to finalise matters".

Investment banking revenues at 13-year low

Industry analyst Coalition says the world’s largest investment banks have had their worst start to a year since 2006, with figures showing that they reported revenues of $76.8bn in H1 2019. This is down 11% on H1 2018 and marks the lowest first-half performance for 13 years. Equities trading saw the biggest dip, falling 17% to $22.1bn, with fixed income, currencies and commodities revenues falling 9% and investment bank advisory down 8%. Operating margins slipped to their lowest level for four years, dipping 500 basis points to 31%. Coalition tracks Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse , Deutsche Bank, Goldman Sachs, HSBC, JP Morgan , Morgan Stanley, Societe Generale and UBS .

Metro Bank slips from FTSE 250

Metro Bank has been relegated from the FTSE 250 list due to a decline in its market capitalisation. The bank’s shares have fallen by more than 90% over the last year, with the lender hit by an accounting error that had classed some of its assets as less risky than they were. A Metro spokesman said: “We don’t comment on our share price. Our absolute focus remains on delivering for our customers, on our strategy and our growth plans.”

British bankers in German fraud trial

British investment bankers Martin Shields and Nicholas Diable have gone on trial in Bonn, accused of having defrauded the German state of €447.5m. Charges centre on 34 instances of serious tax fraud between 2006 and 2011, when the men worked in London as stock traders for Germany’s fourth largest bank, HypoVereinsbank, and then for investment fund Ballance Capita. The accusations relate to cum-ex trading schemes, a practice that was blocked when legislators closed loopholes making such schemes possible in 2012.

PRIVATE EQUITY

Cobham shareholders urged to block takeover

Lady Cobham, the widow of former Cobham boss Sir Michael Cobham, has written to the company's 15 largest investors urging them to vote against Advent International’s £4bn takeover of the British defence group. She believes the 165p-per share bid “significantly undervalues” the firm. Meanwhile, Business Secretary Andrea Leadsom has confirmed she is in talks with Advent over the possibility of it providing legally binding commitments to protect jobs and investment.

Hellman & Friedman selling 6.2% Scout24 stake

Hellman & Friedman is selling a 6.2% stake in German classifieds group Scout24. Blackstone's acquisition vehicle and Pulver BidCo GmbH are selling the shares at an indicated price of €52 per share.

INTERNATIONAL

Lagarde: ECB should review policy

Christine Lagarde, who is set to succeed Mario Draghi as president of the European Central Bank (ECB), has suggested that the central bank should carry out a policy review, noting that the world has changed since the ECB's last review in 2003. She told the European parliament's committee on economic affairs: “My strong belief is that the cost-benefit analysis and possibly a review of the monetary framework, that would have to be conducted, not just by the ECB, but also in coordination with other central bank institutions from around the world, is warranted."

UBS plots revamp of investment bank after performance falters

UBS is set to overhaul its investment bank, creating a single securities and trading unit and combining all debt and equity capital markets functions into one global unit.

Deutsche Bank chief warns on damage from likely ECB rate cut

Deutsche Bank CEO Christian Sewing has warned about the negative side effects of a cut in interest rates by the ECB, arguing it would deepen divisions in society rather that stimulate the economy.

AVIATION

Cathay Pacific chairman steps down

John Slosar, chairman of Cathay Pacific, has resigned from his role at the carrier. The Hong-Kong based airline has been embroiled in controversies relating to the widespread pro-democracy protests in the city and has come under pressure from Chinese authorities to suspend staff who participate in the demonstrations. Mr Slosar’s resignation follows that of its CEO Rupert Hogg and chief customer and commercial officer Paul Loo.

CONSTRUCTION

Barratt builds up profits

Barratt Developments has posted a rise in pre-tax profits for the year to June 2019. The housebuilder reported profits before tax of £910m in the 12 months to 30 June, rising 8.9% on the same period in the previous year. Operating margins rose from 17.7% in 2018 to 18.9% this year. Revenue dipped 2.3% from £4.87bn to £4.76bn over the same period. The total dividend per share rose 5.9% from 43.8p to 46.4p. A total of 17,856 homes were completed, with wholly owned completions up 2.6% to 17,111 homes from a year ago.

FINANCIAL SERVICES

Regulators increasingly aware of diversity issues

Rosemarie Paul, a partner at the London office of US law firm Ropes & Gray, looks at the need for greater diversity and inclusion in the financial services sector. Writing in the Times, she says regulators are increasingly aware of imbalances and “what may appear to be excessively male, pale and stale leadership teams.” Ms Paul says the Financial Reporting Council’s focus on diversity has prompted questions over why there are so few women or people from ethnic minority backgrounds in boardroom roles. Arguing that aggressive enforcement measures would be counterproductive, she believes the Financial Conduct Authority’s approach of encouraging businesses to correct imbalances is the way to go. A cultural shift on diversity, she concludes, is more likely to be led by client demand that tougher regulatory measures.

Asset managers criticized for complex language

With the Financial Conduct Authority (FCA) set to issue new rules that will say fund groups must clearly set out how they are delivering value to their clients and justify their high fees, new analysis suggests that 97% of asset managers use hard-to-understand language in communications with customers. The report, from written language experts VisibleThread, looked at language on the websites of 60 of the world’s biggest investment firms and found companies were “forcing consumers to decipher overly complex and jargon-laden content”.

Just Group hit by new PRA rules

Life insurer Just Group says profit fell more than a quarter in the first half of the year. The company was hit by new rules from the Prudential Regulation Authority which require more capital behind lifetime mortgages. Underlying operating profit fell to £114m for the first six months of 2019, a drop of 27% year-on-year. Revenue rose to £2.03bn, up from £1.45bn this time last year, while net assets were £2.13bn, a 28% increase. Just Group warned that the new regulations could push up how much capital it needs to hold by another £130m. It raised £375m of fresh capital earlier in the year.

Schroders shakes up senior management as competition intensifies

Schroders, which is facing increasing competition from rivals such as BlackRock and Vanguard, has reshuffled roles across its investment management team.

Tech firms top employer rankings

Analysis by employer review website Glassdoor shows that finance firms have fallen behind tech companies in the rankings of the UK’s most popular employers. Amazon topped the list, while Google placed second – with Facebook, Apple and IBM also scoring highly. Barclays and JP Morgan ranked fifth and sixth place respectively, while all of the Big Four consulting firms made it into the top 15.

Woodford suffers FTSE blow

Neil Woodford’s Patient Capital Trust has been ejected from the FTSE 250 index of stocks. The investment trust, which focuses on early-stage companies, was one of six companies to be relegated from the second tier of quoted stocks.

LEISURE AND HOSPITALITY

3G Capital selling shares in Burger King owner

Regulatory filings show that Brazil’s 3G Capital Partners sold shares in Restaurant Brands International – owner of Burger King - for $3bn in the past month. Having last month sold 24m shares at $72.50 per share, raising $1.74bn, it has now agreed to sell the remaining 17m to Morgan Stanley, raising about $1.3bn.

MANUFACTURING

Domestic orders decline

A report from trade body Make UK shows that domestic orders in the UK manufacturing sector declined in the third quarter for the first time in three years, while growth in export orders also weakened. The report, based on a survey of 292 companies between July 31 and August 21 also found that investment intentions turned negative for the first time in three years. It said: “Ominously, companies are cutting back on investment in transport equipment, factory machinery, and IT, just at the point in the economic cycle when spending would normally increase.”

RETAIL

Halfords issues fresh profit warning

Halfords has issued a new profit warning, telling investors that it expects pre-tax profits this year to be between £50m-£55m. In May, Halfords told investors to expect profits “broadly in line” with its 2018 earnings of £58.8m. Halfords also said that, for the 20 weeks to August 16th, like-for-like revenue fell 3.2%.

Dunelm posts 35% rise in profits

Dunelm has shrugged off Brexit and retail sector woes to post a 35% rise in profits to £125.9m for the year to the end of June. Store sales rose 7.7% and online climbed 35%.

ECONOMY

Services growth slows close to recession

Growth in the services sector slowed in August, taking the UK another step towards recession. The IHS Markit/CIPS UK Purchasing Managers’ Index (PMI) dropped to 50.6 in the month, down from 51.4 in July on an index on which any figure under 50 indicates a contraction. Business confidence about the next 12 months in the service sector dropped to its lowest point since July 2016. Taken together with the all-sector PMIs for July and June, the readings suggest a 0.1% contraction in GDP over the last three months. With the economy shrinking 0.2% in Q2 2019, contraction in Q3 would mean the country is in recession.

Chancellor declares end of austerity

Chancellor Sajid Javid yesterday declared the end of austerity and revealed £13.8bn of investment, saying every government department has had its budget for day to day spending increased “at least in line with inflation.” Public spending will rise to 38.6% of GDP in 2020/21, up from 38.1% last year and 38.3% this year. Paul Johnson, director of the Institute for Fiscal Studies (IFS), said Mr Javid's plan marked a "real change in direction on spending,” although the IFS said spending would still be 3% below its level a decade ago, and more than 9% lower in per person terms.

Carney pulls back on worst-case scenario

Bank of England (BoE) Governor Mark Carney has told the Treasury Select Committee that the worst-case scenario for a no-deal Brexit is less severe than the Bank had previously feared. Where last November the BoE had suggested there would be a peak-to-trough 8% decline in GDP, Mr Carney said the worst-case "no-deal, no-transition" scenario would be likely to see the economy shrink by 5.5%. He said unemployment would climb to 7% and inflation climb to 5.25%, down from 7.5% and 6.5%, respectively.

OTHER

Millennials only own half of what they use

A study by Virgin Money shows that millennials only own half of what they use and have the rest on 'tick', with loans, finance agreements and subscription services meaning they do not have outright ownership of certain belongings. A poll of 2,000 adults aged 23-38 show that a quarter have a car on a loan or finance agreement, 60% subscribe to video streaming services and one in ten make monthly payments for items of furniture. The survey saw three in 10 respondents say such measures give them more freedom over their finances, while 28% said not having to buy things outright gave them flexibility and greater control of their finances.

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