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Daily News Roundup: Tuesday, 17th January 2023

Posted: 17th January 2023

BANKING

Lenders have 'obligation' to support struggling borrowers, says Bank governor

Bank of England governor Andrew Bailey says lenders are expected to support borrowers, telling the Treasury Committee: “Banks are under an obligation now to handle customers with payment problems very differently to the way they did in the past, which is why we are seeing fewer repossessions, and I would expect to see fewer going forward.” Mr Bailey also said banks are much stronger financially now than in the past, noting that overall mortgage debt service levels are lower than they were “at points in history when we had stress – before the financial crisis and in the early ’90s.” He also told the committee that market conditions have “pretty much” returned to normal after the controversial mini-Budget sparked disruption in the gilts market and caused a surge in mortgage rates – but warned of “something of a hangover effect” following the turbulence. Mr Bailey and Sam Woods, head of the Prudential Regulation Authority, also warned the committee over the risks of the Government’s proposed insurance rules reforms. Mr Woods said relaxing insurance regulations increases the risk pension providers run out of capital resources but that is a “trade-off” the Government has made.

Banks eye fintech firms

Tim Levene, CEO of venture capital firm Augmentum Fintech, says banks and investment firms will target fintech firms for acquisitions this year. He said: “I look at the balance sheets of the banks and the insurers and the asset managers and they’re sitting on a lot of a lot of cash, a huge amount of cash.” Suggesting that the “vast majority” of money traditional finance firms have spent on digital transformation “has been wasted,” he said they have to “acquire, and acquire sensibly.” He added that banks and investment firms will look to buy struggling firms on the cheap, noting that he expects to see more deals as “valuations have relatively dropped.” Data from industry body Innovate Finance shows that fintech funding in the UK fell 8% to $12.5bn in 2022.

INTERNATIONAL

UBS not interested in buying Credit Suisse

UBS chairman Colm Kelleher says the bank has no interest in buying fellow Swiss lender Credit Suisse, saying he is focused on organic growth rather than acquisitions. Quizzed on whether there were any situations where a UBS takeover of Credit Suisse made sense, he said: “There are always scenarios, but none that are convincing.” The former chairmen of Credit Suisse and UBS supported a merger between the two banks, and held talks in 2020.

FINANCIAL SERVICES

Bailey: BoE did not have a deal on post-Brexit reforms

Andrew Bailey, governor of the Bank of England, has told the Treasury Committee there was no deal done between the central bank and the Government over a post-Brexit shake up of the UK’s financial rules regime, saying the Bank “did not trade Solvency II for the call-in power.” The Government had planned to grant call-in powers that would allow ministers to overrule regulators when setting rules governing banks and financial services firms, but has since opted against pushing ahead with the plan. Mr Bailey said the move would have “severely undermined” the independence of regulators. Solvency II – an EU rule requiring insurers to set money to absorb possible losses - is being scrapped as part of a government drive to cut red tape, post-Brexit.

FCA sees 14% increase in whistleblowing

The Financial Conduct Authority received 291 reports of wrongdoing in Q3 2022, with these containing 734 allegations. The whistleblowing data shows that the reporting of suspected wrongdoing increased 14% in July to September when compared to Q2. The number of allegations reported was up 55% in the same period. While the majority of whistleblowers logging reports provided contact details when doing so, 37% did so anonymously. The majority of reports received related to compliance issues.

Amigo fails to find investor

Amigo Holdings has failed to find a cornerstone investor for its planned capital raise which would have included £15m set aside for compensating customers. The sub-prime lender is now looking for a syndicate of investors to pull together £45m. Under a High Court-approved compensation scheme, the lender is obliged to repay 42p on the pound of interest payments made by borrowers, who paid rates as high as 50%. Amigo was given permission to resume trading last October and is attempting to raise money to fund its restart.

LEISURE & HOSPITALITY

Hospitality sector will need help with pandemic loans

The hospitality industry has warned the Government that it will be calling for forbearance on Government-backed loans issued during the pandemic when they start falling due from the end of March. Kate Nicholls, chief executive of UKHospitality, said the Government could ask banks to be more lenient with borrowers or demand that lenders automatically extend loan repayment terms to applicants. She said the loans are "a ticking time bomb and particularly for our sector, which is much more indebted than other areas of the economy." She added that while other sectors have been able to start paying off loans that they took out as a "precautionary measure," hospitality needed the loans "to be able to get by and have that working capital."

MANUFACTURING

Microsoft's Activision deal prompts competition concerns

Microsoft’s proposed £56bn takeover of video game developer Activision Blizzard faces further scrutiny from regulators, with the European Commission set to outline competition concerns over the largest video game acquisition of all time. The main concern from regulators is that Microsoft could damage the video games market by restricting access to Activision games and give unfavourable terms to its rivals. The Competition and Markets Authority is investigating the takeover, while the US Federal Trade Commission Bureau of Competition said it will go to court to block the deal.

PROFESSIONAL SERVICES

London partners paid 25% more at US law firms

The leading US law firms are now paying their London partners significantly more than their British rivals. Research shows that partners in the London offices of the top 15 US law firms took home 25% more than peers at the UK’s top 15 firms in 2022. Equity partners in 15 most profitable US firms generated average profits of £1.23m, compared to average profits of just £985,000 in the UK’s top 15 firms.

REAL ESTATE

Demand climbs as mortgage rates fall

Demand from buyers in the housing market has increased by 55% so far this year compared with the first two weeks of December, with Rightmove flagging the jump as the biggest “New Year bounce” since 2016. The number of buyers enquiring about properties was also 4% higher than during the opening fortnight of 2019. Analysts say lower mortgage rates are contributing to increased confidence. The average two-year fixed deal has dropped to 5.63% from 5.79% at the start of January and a high of 6.65% in October. Asking prices are up by 0.9% this month, with the average property being advertised for £362,438, having increased by £3,301.

RETAIL

Matalan founder criticises rescue deal

John Hargreaves, Matalan’s founder, has warned that the rescue deal for the retailer leaves it with too much debt. The budget chain has been acquired in a debt-for-equity swap by a group of lenders including Invesco, Man GLG, Tresidor and Napier Park, having failed to elicit a satisfactory takeover bid. The consortium of bondholders will take ownership by cutting the debt by between £150m and £200m, and injecting £100m of capital in a deal due to complete on January 26. The move will cut Matalan’s gross debt from £593m to £336m and is expected to save 11,000 jobs and avoid closures among its 230 UK stores.

ECONOMY

Analyst: Mild recession could pass by year-end

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, believes the UK will experience a very mild recession that could be over by the end of this year, saying the outlook for the UK economy “has greatly improved.” With a drop in energy costs in recent weeks increasing optimism, Mr Tombs said he expects GDP to “hold steady” in the summer and then rise 0.2% in the winter. This would mean the recession would be over by Q4 and that the economy is set to shrink 0.8% in 2023. Mr Tombs previously forecast a 1.5% contraction.

London outperforms the wider economy

London is outperforming the UK economy, with an index of business output in London compiled by NatWest jumping to 50.2 last month, up from 48.2 the month before. At a UK level, activity contracted for the fifth month in a row. December saw the index slip below 50 - the threshold that separates growth and contraction. Wales was the only other part of the UK to register a rise in business activity. at 52, while Northern Ireland posted the worst contraction, at 41.6.

OTHER

FTSE nears record high

The FTSE 100 continued its strong start to the year by moving closer to a record high. The index climbed 0.2% to 7,860.08 points, meaning it has seen its earnings climb 4% so far in 2023. The FTSE 250 index climbed 0.65%, passing the 20,000 point mark. Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “With British consumers flexing their spending muscle over the Christmas period and the country looking more likely to have escaped falling into recession in 2022, the waves of optimism have been lapping over the London market.”

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