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Daily News Roundup: Thursday, 8th February 2024

Posted: 8th February 2024

BANKING

Car finance inquiry could be ‘significant' for lenders

The Bank of England's deputy governor, Sam Woods, has warned that the ongoing investigation into car finance loans could have significant financial ramifications for lenders. The investigation, announced by the Financial Conduct Authority (FCA) last month, has raised concerns about potential fines or compensation payouts for banks. Royal Bank of Canada has estimated a possible liability of between £2bn and £8bn, while Gary Greenwood, an analyst at Shore Capital, has forecast a £5.5bn hit. Mr Woods, who runs the Prudential Regulation Authority (PRA), said that while he does not believe the issue poses a financial stability risk, it could become a significant conduct issue with substantial financial consequences. He told MPs on the Commons' Treasury Committee that the PRA was “very closely engaged” with the FCA's investigation “partly because the range of outcomes seems quite wide.” The FCA's review is focused on historical motor finance commission structures and sales and Mr Woods has emphasised the need to closely examine the details of each commission structure to determine the potential impact on fines or redress bills. 

Alternative lenders step in as demand for larger loans rises

Alternative lenders are stepping in to meet the rising demand for larger loans by UK SMEs, according to a survey conducted by fintech firm Iwoca. The survey found that in Q4 2023, SMEs demanded loans of over £100,000, a 15% increase from the previous quarter. Traditional banks, which have tightened their lending criteria, are losing out, with 77% of brokers noting a reduced lending appetite from such institutions. As a result, 71% of brokers are turning to alternative lenders instead. Colin Goldstein, director of commercial growth at Iwoca, said: “The continued lack of support from the banks – over successive quarters – not only demonstrates the shifting SME lending landscape, but is also hindering a huge source of potential growth for the UK economy."

Standard Chartered starts chair hunt

Former Chancellor Sajid Javid and Charles Roxburgh, who served as Second Permanent Secretary to the Treasury, are reportedly in the running to become the next chairman of Standard Chartered, with José Viñals expected to depart as he approaches the nine-year limit recommended by the UK’s Corporate Governance Code. The board is said to be looking for candidates with experience in emerging markets, international fixed-income and foreign exchange trading. HSBC chief financial officer Iain Mackay and Tushar Morzaria, a former finance director at Barclays, are also believed to be on a longlist drawn up by executive headhunter Spencer Stuart.

PRIVATE EQUITY

Carlyle reports 7% drop in Q4 earnings

Carlyle Group's fourth-quarter distributable earnings fell 7% year-on-year to $402.7m as it sold fewer assets from its private equity portfolio. Carlyle's net profit from asset sales also fell nearly 44% to $257.7m due to market volatility, high interest rates, and geopolitical tensions. However, income from fund management fees rose 2.5% to $525.1m, with this supported by growth in total assets under management, which reached a record $426bn. Carlyle's corporate private equity funds gained 2% during the quarter, while its real estate portfolio lost 2%. Carlyle reported a net loss of $692m under GAAP, primarily due to a one-time charge of $1.1bn related to changes in its compensation programme. Carlyle spent $7.2bn on new acquisitions and raised nearly $17bn of new capital.

INTERNATIONAL

Inter&Co beats profit forecasts

Brazilian digital bank Inter&Co reported a five-fold increase in its Q4 net profit, surpassing expectations. The bank's net profit reached 160m reais, up from 29m reais in the previous year. Inter&Co attributed the increase to cost-cutting measures and a focus on more profitable lending categories. The bank's return on equity also improved, reaching 8.5% in Q4. Inter&Co has been concentrating its credit portfolio on home equity and payroll loans, resulting in a 26% year-on-year increase in its gross loan book.

Handelsbanken sees profit rise

Swedish bank Handelsbanken saw a rise in fourth-quarter operating profit, with it hitting 9.06bn crowns compared to 7.58bn crowns in the previous year. Handelsbanken proposed a dividend increase of 13.00 crowns per share for 2023, up from 8.00 crowns a year earlier.

CONSTRUCTION

Barratt to acquire Redrow in £2.5bn takeover

Barratt Developments has agreed to acquire Redrow in a £2.5bn takeover, creating the country's largest housebuilder. The merger is expected to provide "resilience through the cycle" for both companies, who have struggled to sell homes due to higher mortgage rates. The deal would allow Barratt and Redrow to reduce their annual cost base by £90m within three years and increase dividend payments for Redrow shareholders. The merged group, to be called Barratt Redrow, is expected to build about 23,000 homes a year and have a turnover of more than £7bn. Barratt shareholders will retain 67.2% of the whole group, leaving Redrow shareholders with 32.8%. The Redrow brand will be retained for marketing new homes. Barratt Redrow will be led by David Thomas, Barratt's chief executive. Caroline Silver, who chairs Barratt, will lead the combined board.

FINANCIAL SERVICES

UK investors pump £2bn into equity funds

Analysis by Calastone’s Fund Flow Index shows that UK investors added over £2bn to equity funds in January. This marks the highest level since April 2021. Calastone said this came amid a “distinct surge in buying interest,” with buy orders up by a sixth compared to the monthly average seen over 2023. US equity funds saw record inflows of £1.4bn, while European equity funds saw their third-best month on record with inflows of £471m. Asia-Pacific funds saw their ninth consecutive months of losses at £211m, while UK equity funds saw outflows hit £673m. Edward Glyn, head of global markets at Calastone, said: “Doom and gloom over the UK stock market seems firmly lodged in investors’ minds,” adding: “UK equities are exceptionally cheap by historic and international comparisons, but buyers are nowhere to be found.”

BlackRock leads the way for gross retail sales

BlackRock attracted the most new business throughout UK funds in 2023, according to the quarterly Pridham Report, with this marking the tenth consecutive year that the firm came out on top. BlackRock came in first place for gross retail sales, followed by Legal & General, Fidelity and HSBC AM. For net flows, BlackRock reclaimed the top spot after Fidelity led the way it in 2022. Anna Pridham, editor of the report, said that while gross sales showed that established groups like Schroders, Jupiter and JPMorgan are attracting significant new flows, “as mature businesses, they also contend with high levels of natural outflows and switches.”

EU agrees post-Brexit clearing rules

The EU has agreed on a provisional deal to end the bloc's heavy reliance on a post-Brexit London for clearing euro derivatives. The agreement establishes an “active account requirement” for firms, meaning banks must have an account with an EU-based clearing house to clear contracts. Even after Brexit, around 94% of Euro denominated swaps take place at London Clearing House, according to figures from Clarus. Under the new rules, traders above a certain threshold will have to funnel some derivatives through accounts at EU clearing houses. It is noted that the EU has granted equivalence status to London-based clearing houses until June 2025.

MEDIA & ENTERTAINMENT

Banks accuse tech firms of not taking fraud seriously

Meta has been accused of not taking online fraud on its platforms seriously. This comes after representatives from the banking sector told the Home Affairs Select Committee that the “majority” of scams they see start on Meta platforms. Paul Davis, financial crime prevention director at TSB, told MPs that Facebook Marketplace is the “main place” where purchase, investment and impersonation scams originate. He said: “For those three types, which as I say are the main ones, we see about 80% start on social media.” Philip Milton, public policy manager for fraud at Meta, told the committee that the parent company of Facebook and Instagram takes the issue “extremely seriously.”

REAL ESTATE

House prices climb 2.5%

House price growth hit its highest point in a year in January, according to data from Halifax. Prices were up 2.5% compared to January 2023, hitting an average of £291,029. The increase came as mortgage rates continued to ease and inflation slowed. Halifax's house price data is based on its own mortgage lending, which does not include buyers who purchase homes with cash or buy-to-let deals. Kim Kinnaird, director of Halifax Mortgages, said "affordability challenges are likely to remain" in the coming months, adding that further falls in house prices "should not be ruled out, against a backdrop of broader uncertainty in the economic environment."

ECONOMY

Bank of England expected to cut interest rates in May

Inflation could fall to below 2% in Q2, enabling the Bank of England to cut interest rates in May, according to forecasts from the National Institute of Economic and Social Research. The think-tank expects that inflation will average just 1.2% in the second quarter before rebounding to the Bank’s 2% target by the end of the year, adding that it will “settle” at this level “over the medium term.” The Bank itself estimates that inflation will fall to 2% in the spring before climbing to end the year at around 2.7%.

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