BANKING
BoE: Banks could withstand economic crisis
UK banks are well-equipped to withstand recessions and a decline in GDP, with all major lenders passing the Bank of England’s (BoE) stress testing. The BoE report says banks could keep lending even if UK GDP dropped by 4.7%, global GDP declined by 2.6%, bank rates hit 4% and unemployment rose to 9.2%. The BoE report said the banking sector is “resilient to and prepared for the wide range of UK economic and financial shocks that could be associated with a worst-case disorderly Brexit.” It also said lenders are well-placed to cope with problems caused by the trade war between the US and China and unrest in Hong Kong. While the analysis found that losses on corporate exposures are higher than in previous tests – “reflecting some deterioration in asset quality and a more severe global scenario” – the BoE said the banks and building societies assessed “remain above their hurdle rates.” The central bank is increasing capital requirements for banks by doubling the size of the countercyclical capital buffer from 1% of risky assets to 2%. The stress tests evaluated Royal Bank of Scotland, Barclays, HSBC, Lloyds, Standard Chartered, the UK arm of Santander and Nationwide. Next year the tests will, for the first time, include CYBG after its merger with Virgin Money.
A third of accounts fail to beat BoE rate
A study by Moneyfacts shows that almost one in three savings accounts is failing to beat the interest rate set by the Bank of England (BoE). The number of accounts yielding more than the BoE base rate of 0.75% has fallen by 80 in the last month - the biggest drop in two years. The report shows that 572 of the 1,826 cash accounts available – or 31% - pay 0.75% or less, with HSBC, Lloyds, First Direct, Halifax, Nationwide, Bank of Scotland and M&S all offering accounts paying as little as 0.1%. Rachel Springall of Moneyfacts said: “It has clearly been an unforgiving year for the savings market, which has felt an onslaught of cuts - and seen deals pulled from the market entirely - as providers reined in competition,” while Guy Anker of MoneySavingExpert commented: “It's no surprise people have been put off saving with rates this low.” House of Lords analysis suggests that four in ten people of working age have less than £100 in savings, with one in eight having none at all.
Virgin Money downgraded by Barclays
Shares in Virgin Money fell by more than 5% yesterday after Barclays downgraded its rating from equal weight to underweight. The downgrade came due to weak earnings, high growth in the amount of unsecured personal loans on its books and the cancellation of 2020 dividends. Barclays said: “With capital tight, and capital generation muted, we expect Virgin Money to prioritise low-single-digit loan growth and again announce a near-zero dividend with FY20 results … Virgin Money would then lack the strong capital-returns underpin of other UK banks.”
Banks have learnt their lesson on risk management
Academic Alexander Dill, also author of Bank Regulation, Risk Management, and Compliance, asserts that banks have "learnt their lesson" and that risk management has now "come of age".
PRIVATE EQUITY
Private equity fundraising to fall in 2020
Analysis by private equity data firm Pitchbook suggests private equity fundraising in Europe will decline in 2020, having hit a record this year by reaching $342.9bn by mid-November. This year’s total has been driven up by large firms including Blackstone, Leonard Green and KKR raising record sums. Analyst Dylan Cox says that while 2020 could see a lower total, it is not necessarily because the sector is slowing down or that “allocations have cooled”, suggesting that large firms may focus on allocating capital raised in 2019, as well as embarking on new fundraising efforts that may not close until 2021.
INTERNATIONAL
UBS to wind down unit for the super-rich
UBS is understood to be planning the break-up of its ultra-high net worth unit, in an overhaul designed to increase higher-margin lending to some of the world’s biggest family offices.
AVIATION
Boeing to pause 737 Max production
Boeing will temporarily halt production of its 737 Max airliner in January, with the model having been grounded for nine months after two fatal crashes. While the firm had hoped to have the aircraft in the air again before 2020, regulators in the US have said the 737 Max will not be certified by the end of the year. Boeing said it would not lay off workers associated with the 737 Max, but the stoppage is likely to affect suppliers and the wider economy. The suspension of the 737 Max has already cost Boeing around $9bn.
BA settles pilots dispute
British Airways has agreed a pay deal with union leaders, with British Airline Pilots’ Association members voting almost nine to one in favour of the package that will avert the threat of further strikes by pilots. The union is believed to have accepted an 11.5% pay rise over three years with the addition of a clause that allows for further rises in line with inflation.
FINANCIAL SERVICES
BoE could curb open-ended funds
The Bank of England (BoE) and Financial Conduct Authority could block investors from pulling out money at short notice unless they are willing to take a hit on the value of their investment. The regulators are considering new rules after a review identified problems in the way funds measure and communicate their liquidity. The BoE wants open-ended funds to offer redemption periods, suggesting these should mirror the time it takes to sell underlying assets at a fair price. BoE governor Mark Carney said the current system had a “first-mover advantage” where customers have a better chance of getting their cash back in full if they pull their money first, with it suggested the incentive could cause a run on funds. This, Mr Carney warned, “has the potential of becoming a systemic risk, as first-mover advantage could cause a destabilising rush towards the exit.”
Hargreaves recruits Schroders veteran
Hargreaves Lansdown has recruited John Troiano to join its board as an independent non-executive director. Mr Troiano will join the board when he retires from Schroders at the end of 2019, after 38 years at the firm. Hargreaves chair Deanna Oppenheimer said Mr Troiano’s appointment “reflects the ongoing focus we have in ensuring strong governance.”
LEISURE AND HOSPITALITY
Thomas Cook went bust with liabilities of £9bn
An Insolvency Service report on the failure of Thomas Cook shows it collapsed with total liabilities of £9bn, owing £585m to customers and £45m to employees, with £5.7bn owed to other group companies and £1.7bn owed to banks and other lenders. The report refers to 26 Thomas Cook Group companies which were wound up on September 23, with a second report to focus on a further 27 UK companies in the group which were wound up on November 8. The notice to creditors shows that between £176m and £244m has been recouped through selling off Thomas Cook assets.
Expansion bites into pizza chain's profits
Profits at sourdough pizza chain Franco Manca halved in the six months ending in September, from £1.5m last year to just £743,000, amid its expansion push. It plans to open between eight and 10 new restaurants in the next financial year. The bite came despite a 9.3% year-on-year jump in revenue to £36m.
MANUFACTURING
Manufacturing output slows
Overall UK manufacturing output dropped to 48.5 in December, according to IHS Markit’s composite purchasing managers’ index (PMI), down from 49.3 the previous month to a 41-month low. Any reading below 50 on the index indicates a contraction. The fall in manufacturing output was the fastest since July 2012. Services data also fell short of forecasts, coming in at 49 compared to an expected 49.5. The decline follows a fall in November, with the sector seeing consecutive monthly declines for the first time since 2009. “December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months,” said IHS Markit chief business economist Chris Williamson.
MEDIA AND ENTERTAINMENT
WPP offloads Two Circles stake
WPP has sold a majority stake in sports marketing agency Two Circles to private equity firm Bruin Sports Capital. WPP, which snapped up a stake in Two Circles in 2015, did not disclose the value of the deal and said the transaction remained subject to regulatory approval.
REAL ESTATE
Nationwide calls on government to revive Empty Homes Fund
Nationwide has called on the new government to revive the Empty Homes Plan to bring thousands of vacant properties back into use. The building society is calling for £185m to be invested in placing families in 15,000 properties, based on local match-funding. An estimated 226,000 properties in England are empty. Nationwide believes that bringing them back into use would provide much-needed housing. At present 85,000 families are living in unsuitable and overcrowded temporary accommodation.
RETAIL
Sports Direct warns of closures despite rising profits
Sports Direct expects underlying earnings for the full year to grow by 5%-15% after reporting “green shoots of recovery” at House of Fraser – although it also said it will be closing a number of “unprofitable” HoF stores. Sports Direct’s group sales rose by 14% to £2.04bn in the six months to October 27, while pre-tax profits rose 160% to £193.4m. The company also reassured investors that it expected no material liability from the Belgian authorities after a £605m tax demand it received in July.
ECONOMY
UK borrowing up by £20bn a year
The Office for Budget Responsibility (OBR) says government borrowing will increase by around £20bn a year due to accounting changes. Its updated forecasts show that the budget deficit will be £33.3bn by 2023/24, up from a previous estimate of £13.5bn. Much of the difference between the new total and one issued in March stems from changes to the way student loans are assessed, with them treated as spending now where they had been treated as such when they failed to be repaid. The OBR has also rectified a £4bn a year error that underestimated corporation tax receipts.