BTG Advisory
Higher borrowing costs await commercial property investors
BTG Advisory’s Sorca McGeown considers the financing landscape for commercial property investors over the year ahead. Refinancing needs are expected to rise as loans extended during the pandemic expire, she says, but fortunately liquidity in debt markets remains “broad-based and deep”. The upside risks to borrowing costs, however, include interest rate rises and stagflation, which could curb financing demand and increase the likelihood of a rise in non-performing loans. Although the property sector broadly has benefited from a rebound in debt liquidity, the office market has been complicated by the work-from-home trend, leading to more complex loan arrangements, which McGeown notes, is something alternative lenders are well suited to. Indeed, alternative lenders have become more popular with borrowers opting for increased structural flexibility even if it costs more. But debt funds are also heavily focused on climate change and ESG risk analysis in loan underwriting, explains McGeown, meaning borrowers and lenders alike will need to assess carefully how loan covenants and pricing will be influenced by climate change-related costs.
BANKING
Which? exposes worrying online banking security flaws
The consumer group Which? has urged banks to improve online security after an investigation conducted with experts 6point6 found six banks – HSBC, NatWest, Santander, Starling, the Co-operative Bank and Virgin Money – let people choose passwords that include their first name and/or surname. TSB, Lloyds, Metro, Nationwide, Santander and the Co-operative Bank also used texts to verify people when logging in, leaving messages at risk of being hijacked by cybercriminals, Which? said. In addition to this, Which? also claimed Nationwide, TSB and Virgin Money were not using software that ensures spoof messages sent by potential scammers are blocked or quarantined by someone’s email provider. Jenny Ross, Which? Money editor, said: “Banks must lead the battle against fraud, yet our security tests have revealed worrying flaws when it comes to keeping people safe from the threat of having their account compromised.”
Santander appointment
Jane Galvin has been appointed by Santander as head of corporate clients within its corporate and commercial banking (CCB) division. Ms Galvin, who will start in the role at the beginning of February, joins Santander UK from HSBC UK, where she was Managing Director of Corporate Banking UK and led their UK corporate banking team from 2017-2021.
UK financial regulators to step up scrutiny of cloud computing giants
The Prudential Regulation Authority is looking to probe the resilience of cloud providers amid concerns about the scale of disruption to the banking system should their services fail.
PRIVATE EQUITY
Inside private equity’s race to go public
After eleven listed private equity firms collectively gained nearly $240bn in market value in 2021, the FT looks at how, a growing number of privately held buyout groups are rushing to join them on the public markets.
KKR raises $4bn for second healthcare fund
US private equity giant KKR has raised $4bn (£3bn) for its second fund dedicated to high-growth healthcare companies in North America and Europe.
INTERNATIONAL
EBA: EU banking profitability above pre-COVID levels
The European Banking Authority (EBA) has revealed that banks in the EU became more profitable in the third quarter of 2021, with government support during the pandemic helping to push down the number of loans that turn sour. In its latest quarterly "risk dashboard", the EBA said: "Asset quality has further improved, but there are concerns for loans that have benefited from moratoria and public guarantee schemes not least due to general uncertainty due to COVID-19 variant, Omicron. Profitability has stabilised at levels above those seen before the pandemic. The majority of banks expect a rise in operational risks mainly due to elevated cyber risks." The non-performing loan (NPL) ratio of loans that turn sour, fell 20 basis points quarter-on-quarter to 2.1%, while return on equity, a key measure of profitability, was 7.7%, up from 2.5% in the same quarter in 2020, and 5.7% in the third quarter of 2019. The core ratio of capital to risk-weighted assets in the third quarter of last year was 15.4%, down 10 basis points on the prior quarter but still well above regulatory requirements, EBA said.
SEC preparing tighter disclosure rules for private companies
The Securities and Exchange Commission has begun work on a plan to require more large private companies to routinely disclose information about their finances and operations. The move comes amid concern about the lack of oversight of the private fundraising that has fuelled the rise of so-called unicorns—private companies valued at $1bn or more. “When they’re big firms, they can have a huge impact on thousands of people’s lives with absolutely no visibility for investors, employees and their unions, regulators, or the public,” said Democratic SEC Commissioner Allison Lee, who has called for the change. “I’m not interested in forcing medium- and small-sized companies into the reporting regime.”
JPMorgan looks to boost Asia private banking headcount
JPMorgan is looking to boost its private banking business headcount in Asia by more than 100 this year, according to reports. It is understood that about a fifth of its new hires will focus on clients in mainland China. Reuters notes that the Wall Street bank has already expanded aggressively in Asia in 2021 with 42 new joiners based in Hong Kong to cover mainland clients, bringing the total number of people on its mainland China team to 80
Cerberus cuts Deutsche Bank, Commerzbank stakes
Shares in Deutsche Bank and Commerzbank were down yesterday after Cerberus revealed it was cutting its stakes in the two banks from 3% to 2% and 5% to 3% respectively. Since Cerberus bought its stakes, shares in both lenders are down more than 20%.
AUTOMOTIVE
Rolls-Royce car sales helped by ‘life can be short’ mentality
Rolls-Royce Motor Cars enjoyed its largest annual sales volumes in its 117-year history in 2021 shifting 5,568 cars, 49% up on the 3,750 it sold during 2020 and also more than the 5,152 delivered in 2019. CEO Torsten Müller-Ötvös said pandemic lockdowns and the consequent accumulation of wealth led customers to believe they should spoil themselves while they could.
CONSTRUCTION
Gove threatens developers who snub £4bn cladding costs
Housing developers saw their share prices fall on Monday after the Housing Secretary threatened to tax and fine those responsible for dangerous cladding if they do not voluntarily fix safety defects. Michael Gove told MPs that no leaseholder "will ever face the costs for fixing cladding" on buildings over 11 metres high.
FINANCIAL SERVICES
FCA close to a decision on Woodford fund probe
The Financial Conduct Authority has told the Treasury Select Committee that it is close to deciding whether to take enforcement action over the suspension of the Woodford Equity Income Fund. “We are now finalising our legal analysis with a view to making decisions as to whether to take action and, if so, what action should be taken and against whom,” Nikhil Rathi, the watchdog’s chief executive, wrote in a letter to MPs. The fund run by former star stock-picker Neil Woodford was suspended in June 2019 after it ran short of cash to repay investors who wanted to withdraw their money following a string of losing bets on privately owned companies. Committee chair and Tory MP Mel Stride said that he expects the watchdog “to ensure that this investigation and any regulatory action which follows is resourced to ensure as swift as possible a conclusion”.
Climate fears are driving up demand for disaster insurance, says Munich Re
Munich Re’s climate solutions unit head Ernst Rauch has said demand for catastrophe insurance in Europe was growing following last summer’s floods along with the costs of cover.
HEALTHCARE
Care home sector set to increase fees as costs soar
The FT reports that Britain's biggest care home operators are planning to increase fees by as much as 10% this year due to higher staffing, food and energy costs.
RETAIL
Investment in online platforms pays off for retailers
Retail sales rose 2.1% in December compared with the same month last year and were 4.6% higher than in 2019, according to data compiled by the British Retail Consortium. While this was a slowdown from the 5% rise in November, the figures suggested resilience in consumer spending. On a like-for-like basis UK retail sales grew by 0.6% in December compared with the previous year. As a result, for the whole of 2021 total sales grew by 9.9% compared with the previous year and were 6.6% higher than in 2019. Helen Dickinson, chief executive of the BRC, said: "Retailers did well to weather the challenging trade conditions, with retail sales for 2021 up on both the previous year and compared to pre-pandemic levels. Continuing a trend throughout the pandemic towards online shopping, 2021 saw a double-digit rise in non-food online sales, a testament to retailers' huge investments in their online platforms." However, looking ahead, the BRC said soaring living costs could erode consumer spending power and weigh on retail sales.
ECONOMY
Inflation expected to be double BoE target for 2022
Forecasts from BNP Paribas expect UK inflation will peak at 6.7% this April, brought higher by the energy bill cap being lifted around 50%. The bank’s analysts predict the rate will not fall below 4% until November this year, meaning the cost of living will remain at least double the Bank’s target for an entire year. Separately, Capital Economics is pricing in four rate hikes in 2022, taking borrowing costs 1.25%, the highest level since February 2009.