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Daily News Roundup: Tuesday, 14th February 2023

Posted: 14th February 2023

BTG Advisory

Airline industry optimistic but headwinds persist

Mark Fry of BTG Advisory says that while the global airline industry “has been at the forefront of renewed economic optimism” so far this year, it faces “a raft of legacy headwinds” and 2023 “looks to be a year of consolidation.” The International Air Transport Association estimates that the global airline industry is set to earn $4.7bn in global annual net profits in 2023, with Mr Fry saying this would “crystalise a stunning turnaround” after losses of $137.7bn in 2020, $42bn in 2021 and $6.9bn in 2022. However, he goes on to warn of challenges the sector faces, with supply “the biggest threat to the outlook for profitability,” and legacy supply chain disruptions and backlogged aircraft deliveries set to weigh on capacity. Looking ahead, Mr Fry says easing energy costs and a “brightened macro outlook” mean the airline industry has the strongest tailwinds for three years. “However, a recovery remains vulnerable to unexpired risks and legacy pandemic disruptions which could rapidly re-emerge,” he adds.

BANKING

Banks ‘risk reputations’ by failing to help borrowers

Credit rating agency Moody’s has warned that mortgage lenders risk reputational damage if they fail to help customers struggling with rising borrowing costs. It said banks and building societies faced “social risks” from interest rates that are climbing as the Bank of England looks to contain inflation. Moody’s said: “We expect banks to work proactively with their customers to refinance maturing loans or, for those with constrained cash flows, to avoid default,” adding: “Failure to do so would entail reputational risk.” This comes just a few months after Financial Conduct Authority chief executive Nikhil Rathi warned financial services firms that how they navigate this period of economic turmoil “will determine the industry’s reputation for decades ahead.”

Biggest banks see profits of £107m a day

Britain's biggest banks are set to post profits worth an equivalent of £107m per day, with returns driven up by higher interest rates. Barclays is this week expected to unveil profits for 2022 that exceed £7bn, while analysts calculate that NatWest will reveal a £5bn windfall. Lloyds is predicted to reveal profits of £7bn next week, while HSBC will post earnings of more than £14bn and Standard Chartered’s total is set to hit £4bn. If the predictions prove accurate, banks will have made a total of £39bn in profit during 2022, with Spanish lender Santander estimated to have pulled in £2bn from its UK arm. 

NatWest snaps up pensions fintech in £144m deal

NatWest is to buy pensions fintech Cushon for £144m, snapping up an 85% stake in the firm. Peter Flavel, the chief of NatWest’s wealth business, said Cushon’s “disruptive proposition” would support customers as they “saved for the future and managed their financial wellbeing.” Cushon currently has around 500,000 customers and manages around £1.8bn in assets for savers.

Lender allows bigger mortgage overpayments

Those with a NatWest mortgage will be able to overpay twice as much on their home loan from next month. The bank is increasing its overpayment threshold so that customers will be able to clear up to 20% of their remaining balance without having to pay early redemption charges. This will apply to fixed and tracker mortgages. The lender will write to customers who regularly overpay more than £500 a month or who clear between 8% and 10% of their balance each year, advising that they can pay more if they want to. Borrowers overpaid £6.66bn on mortgages in the final three months of last year, up from £5.16bn in 2021, according to the Bank of England.

INTERNATIONAL

Goldman boss: Job cuts should have come sooner

Goldman Sachs chief executive David Solomon has reportedly said the investment bank should have cut jobs and slowed hiring of new staff earlier in 2022. A source says he told Goldman executives: “As the environment was growing more complicated in Q2 of last year, every bone in my body believed we should be much more aggressive in slowing hiring and reducing headcount.” Goldman cut 3,200 jobs in January, having seen a slowdown in dealmaking and substantial costs as a result of a move into consumer banking. Profit slipped 44% year-on-year in Q4.

Citi eyes £6.6bn sale of Banamex

Citigroup is nearing a £6.6bn sale of its Mexican retail bank Banamex. According to people familiar with the matter, the owner of Mexico’s largest mining company, Germán Larrea, is in exclusive talks to purchase Banamex. There has also been interest from Mexican bank Banca Mifel, with backing from private equity fund Apollo.

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FINANCIAL SERVICES

Ministers look to tighten BNPL regulation

The Government has launched a consultation on rules to regulate the buy now, pay later (BNPL) sector, with ministers vowing to clamp down on firms and offer stronger protection for consumers. Proposals put forward by the Treasury will see BNPL products regulated by the Financial Conduct Authority (FCA), with consumers given the right to have complaints reviewed by the Financial Ombudsman Service. Under the new plans, the FCA would be able to ban firms that breach the rules from further lending. Ministers estimate that the new rules could help protect about 10m consumers from “unconstrained borrowing.” Andrew Griffith, economic secretary to the Treasury, said: “People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important.” An FCA review in 2021 identified an “urgent need” to regulate the BNPL sector, saying it could represent a “significant potential consumer harm.”

Crypto venture capital plummets in Q4

Investment into cryptocurrency start-ups saw a steep decline at the end of 2022, according to investment research firm Pitchbook, with the market hit by the collapse of crypto exchange FTX and several high-profile bankruptcies. The flow of cash into crypto start-ups fell to $2.5bn in Q4, with this 75% down on Q3 and well below the $11bn pumped into crypto by venture capital firms in the first three months of 2022. Pitchbook analyst Robert Le said: “Mainstream adoption of crypto is unlikely to occur until better regulations and guidelines are in place,” adding: “The lack of clear regulation is a major concern for the industry and is seen as a limiting factor.”

REAL ESTATE

Ministers urged to double stamp duty surcharge for overseas buyers

The National Association of Property Buyers (NAPB) has called on the Government to double the stamp duty surcharge overseas buyers must pay when purchasing a property in England, saying this would “level the playing field.” Under current rules, overseas buyers face an extra 2% surcharge for a home they are going to live in, and an 5% for any property that will not be their main home. The lobby group says buyers from “high income and low tax locations” are pushing up UK property prices, while also warning that the decline in Sterling that followed September’s mini-Budget created a “huge discount” for overseas buyers. NAPB spokesman Jonathan Rolande said: “Foreign ownership is reducing available stock in the sales and rental sector and pushing up prices.” Data shows that almost 250,000 UK properties worth a combined sum of £90.7bn are currently owned by overseas nationals.

Landlords pay bigger deposits to beat higher mortgage rates

Landlords are having to pay higher deposits to counter steep rises in the costs of borrowing, according to analysis by Yorkshire Building Society. The report shows that 62% of investors are taking out mortgages with deposits of at least 40% of the value of their properties when buying or remortgaging, with only 20% of landlords paying this much up-front a year ago. Data shows that 33% of landlords remortgaged with deposits of at least 51% last month – up from 11% in July. Investors are having to put in more cash so as to reduce monthly payments, with Moneyfacts analysis showing that the average rate for a two-year buy-to-let mortgage with a 25% deposit has risen from 2.86% a year ago to 5.95%. In the same period, mortgages with a 40% deposit rose from 2.07% to 5.55%.

ECONOMY

Britain sees £29bn ‘productivity penalty’ from Brexit

Bank of England policymaker Jonathan Haskel says the British economy has been hit by a £29bn "productivity penalty" due to Brexit – with this equivalent to £1,000 per household and 1.3% of GDP. Mr Haskel, an external member of the Bank's Monetary Policy Committee, said a wave of investment "stopped in its tracks" following the referendum in 2016. Asked why he thought Britain faced a bigger slowdown in productivity than other countries, Mr Haskel said that while it was partly due to the country's large financial sector, “it really goes back to Brexit.” He said that while there was a “big boom” of investment from around 2012 to 2016, this “just plateaued from 2016.”

EU projected to avoid recession

The European Union is predicted to avoid a recession, with lower inflation and higher growth than had been forecast. Calculations from the European Commission (EC) suggest that growth across the bloc will hit 0.8% this year, exceeding a previous estimate of 0.3%. The report also estimates that the annual rate of growth across 2022 was 3.5%, while 2024 is forecast to see growth of 1.6%. The EC data shows that inflation fell from 11.1% in November to 10.4% in December, although it was up 5.3% year-on-year.

OTHER

Bank of Mum and Dad hands out £14bn a year

The Institute of Fiscal Studies has revealed that parents give their adult children almost £14bn a year mainly to help with key life events such as buying a house. On average, people in Great Britain gifted and informally lent each other cash and assets worth £17bn a year between 2018 and 2020 – up from £14bn a year between 2016 and 2018. Parents gave £11.7bn a year to their adult children as gifts and £2.2bn a year as informal loans between 2018 and 2020.

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