BANKING
Lenders expect loan default increase
The latest Bank of England credit conditions survey shows that lenders expect to see loan defaults rise in the coming months. Amid the ongoing cost of living crisis, banks predict that mortgages, unsecured lending and business loans will see an increase in defaults over the three months to May. Banking firms and credit providers also said they saw a decrease in defaults for both secured and unsecured loans in the quarter to February. Lenders saw demand for unsecured lending increase in the three months to February, with this forecast to rise further in the current quarter. The report also shows that lenders plan to rein in mortgage lending, with the availability of secured credit set to decrease over the next three months to May. Demand for unsecured lending is expected to climb, having increased in the three months to February, with this driven by increased demand for credit cards and loans. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said climbing inflation and “eye-watering” price rises for many essentials has forced more people to “borrow to make ends meet,” noting that credit card borrowing grew faster than any other month on record in February.
Banks yet to update anti-fraud measures
Virgin Money and Metro Bank have yet to adopt anti-fraud measures designed to protect banking customers. The banks are yet to introduce Confirmation of Payee (CoP), which checks the name on the account the person is sending money to, two years after most other banks have started using it. Payments sent to banks that did not have CoP were up to 100 times more likely to be reported as fraudulent last year, according to Lloyds Bank. Virgin said it expected to introduce CoP "very soon" and Metro Bank said it would be "in the second half of 2022." Andrew Hagger from the personal finance site Moneycomms said: "It's disappointing that some banks are yet to introduce this basic customer fraud protection service. The big banks have long since shut down this security loophole." He has urged the Payments Services Regulator (PSR) to "put pressure on the banks who are yet to conform to make this a priority". The PSR said: "We are considering whether we need to take further regulatory action by requiring confirmation of payee on a wider scale."
Banks accused of paying suppliers late
Co-operative Bank and Metro Bank are among the worst performers for paying suppliers, data compiled by TSB shows. According to official figures, Co-operative Bank pays half its invoices within 30 days, with this below the standard recommended by the prompt payment code, while it also takes more than 60 days to pay more than 11% of its invoices. Metro Bank had the highest proportion of overdue invoices — bills not paid within agreed terms — at more than one in four. It was also found that Sainsbury’s Bank pays fewer than three in five invoices within 30 days. TSB posted the best performance of the banks monitored, paying 97% of its invoices within 30 days.
NatWest faces rebellion over pay plans
NatWest faces pressure over its plan to boost the pay package for its top bosses after the Investment Association issued an “amber top” warning on the bank’s new executive remuneration policy. The move, which comes ahead of next week’s AGM, increases the risk that NatWest will face a shareholder rebellion against its proposals. This comes after advisory group Glass Lewis recommended that investors reject the bank’s new policy. ISS has raised concerns about NatWest’s plans but decided that “qualified support” was warranted. NatWest’s plan would bring back cash bonuses for executives, significantly increasing the potential rewards on offer to CEO Alison Rose and Katie Murray, its finance director. Commenting on the bank’s plans, chairman Sir Howard Davies said: “The board believes that this is the appropriate time to normalise our executive pay policy and to bring it in line with other UK banks.”
Lloyds may strip ex-boss of bonus
Former Lloyds Bank chief executive Sir Antonio Horta-Osorio could be stripped of more than £1m of his bonus and share incentives over the HBOS Reading fraud. The Mail on Sunday says that part of the former CEO’s payout has been “put on ice” due to the soaring compensation bill for victims of the financial scandal, with the bank's remuneration committee deciding whether to claw back some of his pay packet. George Culmer, the bank's former CFO, and Juan Colombas, its former COO, have also had part of their payouts frozen. Lloyds was forced to set aside another £790m for redress at its annual results in February, taking the total to £1.2bn. Meanwhile, a review into the scandal, which began in 2017, has been delayed, having already been pushed back four times.
Bank of London appoints deputy CEO
Tom Wood has been appointed deputy chief executive at the Bank of London. He previously held senior positions at Shawbrook Bank and the Co-Operative Bank, as well as consulting on private equity funds. Bank of London, which launched last year and secured unicorn status with a £1.1bn valuation, is only the second clearing bank to launch in the UK within the last 250 years. It focuses on global clearing and transactions, with chairman Harvey Schwartz and CEO Anthony Watson having declared an ambition to take on the Big Four UK banks and shake up the “arcane and sleepy” world of global payments infrastructure.
New City bankers see £63k before bonuses
Entry level banking analysts can now expect a base salary of £63,000 before bonuses, according to a report from professional services recruiter Dartmouth. This marks an increase of more than a quarter on last year figures. The report shows that JPMorgan is highest paying graduate recruiter, offering £70,000 a year, while Goldman Sachs paid the highest bonuses last year, handing an average of £180,000 to associates and £350,000 to its vice presidents. Logan Naidu, chief executive of Dartmouth, said investment banks are being forced to offer such elaborate pay rewards as they are now competing with private equity firms for the best graduate talent.” The research also found that junior associates at City investment banks, who have four years of experience, can expect to take home a base salary of £119,000, up 14% from the prior year, and an average bonus of £107,000 on top.
A fifth of bankers earning more than £125k benefited from non-dom status
A fifth of UK bankers earning more than £125,000 a year benefited from non-domiciled tax status, new research shows. The study by researchers from the University of Warwick and the London School of Economics analysed the anonymised personal tax returns of those who claimed non-dom status between 1997 and 2018. It found that the status benefitted higher earners most. While 0.3% of British taxpayers earning under £100,000 in 2018 had claimed non-dom status at some point in the past 20 years, 27% of taxpayers earning £1m to £2m pounds had done so, as had 40% of those who earned £5m or more.
PRIVATE EQUITY
Cinven eyes London-listed tech firm
Private equity firm Cinven is considering a £1bn bid for software company Ideagen, a tech firm which sells software to help businesses and governments comply with regulations.
INTERNATIONAL
Morgan Stanley posts strong revenue
Morgan Stanley posted $14.8bn in revenue during the first three months of 2022, with this marking its second-best quarter ever. Net profits were down 11% to $3.54bn - far less than those at large Wall Street rivals, while its tangible return on equity of 19.8% is now the highest among the big Wall Street banks. Overall investment banking revenue slumped 38% to $1.76bn but dealmakers brought in $944m in advisory revenues in the quarter, compared with $480m a year ago. Total expenses fell to $4.83bn from $5.3bn a year earlier.
Goldman sees profits fall 42%
Goldman Sachs has reported a 42% drop in profits in the first quarter to nearly $4bn, down from $6.8bn a year earlier. Revenues fell 27% to just under $13bn due to “significantly lower” income from its asset management and investment banking divisions. The bank was also hit by an increase in loan loss provisions, having put aside $561m compared with the release of $70m last year. Goldman bankers saw their pay and benefits fall by nearly a third in the first quarter, with the Wall Street bank saying it put aside nearly $4.1bn to cover the costs of compensating staff over the first three months of the year.
Wells Fargo exceeds estimates
Wells Fargo's first-quarter profit dropped 21% but beat Wall Street expectations. The US’ fourth-largest lender posted a profit of $3.67bn compared to $4.64bn in Q1 2021. The 88 cents per share profit seen in the three months ended March 31 outdid analysts’ 80 cents per share estimate. Total revenue fell 5% to $17.59bn, compared with estimates of $17.8bn. Non-interest expenses fell 1%, while net interest income rose 5% during the quarter helped by higher loan balances and a decrease in long-term debt. Overall average loans grew to $898bn in Q1, up from $873.4bn a year earlier.
BoA profit dips in Q1
Bank of America has seen a 12% year-on-year fall in first-quarter profit, with a slowdown in global deal making hitting its investment banking businesses, where fees slipped 35%. Profit applicable to common shareholders fell to $6.6bn for the quarter from $7.56bn a year earlier. Revenue hit $23.3bn in Q1, with this up by $1bn on Q4 2021 and above broker expectations of $23.2bn. Average loan balances climbed by $70bn in the first quarter to almost $1 trn while average deposits jumped by $240bn to $2trn. CFO Alastair Borthwick said: “First quarter results were strong despite challenging markets and volatility, which we believe reflect the value of our Responsible Growth strategy.”
Citigroup's profits fall
Citigroup saw a 46% decline in Q1 profits amid hits from Russia-related losses and higher expenses. The bank added $1.9bn to its reserves in the quarter to prepare for losses from direct exposures in Russia and the economic impact of the Ukraine war. Revenue fell 2% to $19.2bn, with a 43% slump in investment banking revenue taking a toll.
FINANCIAL SERVICES
City pay jumps and jobs surge
Bankers, accountants and lawyers are being lured to switch roles with bumper pay rises as firms face a shortage of qualified candidates. Workers in the City had an average salary increase of 22% in Q1, outdoing the 19% pay rise seen in the closing quarter of 2021. Recruitment firm Morgan McKinley’s Spring London Employment Monitor found a 73% increase in jobs available in the first three months of 2022 compared to Q1 2021 - and a 35% increase on Q4 2021. Hakan Enver, managing director at Morgan McKinley UK, said: “Once again, the City's recruitment has shown stubborn resilience in the face of adversity,” adding that Q1 saw “companies hiring in their droves and professionals with renewed confidence to move.” He added: “Despite London's 'bubble' continuing along its own path, the escalating global issues could still have an impact on hiring for the remainder of the year.”
FSCS pays compensation on 99% of LCF bonds
The Financial Services Compensation Scheme (FSCS) has paid compensation on 99% of bonds impacted by the collapse of London Capital & Finance (LCF) ahead of the deadline. The FSCS said it has paid out compensation, as part of the government scheme, for 12,330 bonds, totalling more than £114m. These payments are processed as part of a Government redress scheme which was launched in November and pays 80% of bondholders’ principal investment in eligible bonds, up to a maximum of £68,000. LCF collapsed in 2019 owing more than £230m, putting the funds of 14,000 bondholders at risk.
BlackRock CEO Larry Fink’s pay rose to $36m in 2021
Larry Fink, CEO of asset management group BlackRock, saw his pay jump 21% to $36m last year, with this including cash and equity incentives on top of his $1.5m base salary.
EQT to compete to buy Motor Fuel Group
Swedish buyout fund EQT is set to compete with the infrastructure arm of KKR and Beijing-backed Chengdu Xingcheng Investment Group in the auction process for Britain's largest forecourt operator, Motor Fuel Group (MFG). MFG's owner, US buyout firm Clayton Dubilier & Rice, is understood to be seeking £4.6bn for the business. Fortress Investment Group is also believed to be interested in buying MFG.
Buyout firms mulling bids for Together
Sky News reports that Together Financial Services, which specialises in mortgage lending and auction finance, has asked private equity firms to submit indicative offers over the sale of a minority stake in the business. Founder Henry Moser is believed to value Together at between £1.7bn and £2bn, although it is unclear whether any of the potential bidders would meet his expectations. Cinven and Warburg Pincus are believed to have expressed an interest in the company.
LEISURE & HOSPITALITY
Carnival hit by shareholder revolt
Cruise line Carnival has been hit by a shareholder revolt over chief executive Arnold Donald's £11.4m pay packet, with 36% of investors voting against the pay report. Carnival gave Mr Donald a potential package of more than £11.4m, including a £4.6m bonus, despite its use of the furlough scheme, not paying dividends and pushing through redundancies during the pandemic.
MEDIA & ENTERTAINMENT
Musk makes Twitter bid
Elon Musk is no longer the largest shareholder in Twitter after asset manager Vanguard Group increased its stake. Vanguard now owns 10.3% of the social media platform, while Tesla CEO Mr Musk owns 9.1%, making him the largest individual shareholder. Other owners of large quantities of Twitter stock include Morgan Stanley, Fidelity and BlackRock. It was last week revealed that Mr Musk is looking to take Twitter private in a $41bn takeover bid.
PROFESSIONAL SERVICES
FRC proposes powers to ban auditors
The Financial Reporting Council (FRC) has published proposals to reclaim powers allowing it to register, restrict and remove licences from the auditors of the UK’s largest companies, saying it has insufficient powers to address systemic issues at the sector’s biggest players. The watchdog said the proposal will "bolster the FRC’s supervisory toolkit and enable it to become increasingly assertive in holding audit firms to account for the delivery of high-quality audit." The change would affect about 30 audit firms and be rolled out from September.
REAL ESTATE
Mortgage applicants may struggle to get the amount they need
House hunters planning to apply for a mortgage may find they cannot borrow as much as they could have a week ago as banks tighten up lending rules. SPF Private Clients said one client who applied for a loan with Santander found that the amount they could borrow had fallen 10% between March and April. The bank has been one of the first to change its affordability models to factor in April's increase in National Insurance and the rising cost of living. Nick Mendes from broker John Charcol said he expects first-time buyers to be particularly affected. "Those who typically look at higher loan-to-value products often have less disposable income, so you would expect these applications to be under greater scrutiny," he said.
House listings increase, say surveyors
The number of new homes being listed for sale has risen for the first time in a year, according to surveyors. The latest Royal Institution of Chartered Surveyors residential market survey said an increase in listings has helped drive a “modest” rise in sales last month. A net balance of 8% of property professionals witnessed a rise in the volume of fresh listings. The new figures also showed a net balance of 9% of respondents reporting a rise in new buyer enquiries for the month. Experts at the trade body said it was the first time since the pandemic that supply of properties and demand from potential buyers had been so closely aligned. In March, a balance of 74% of respondents saw a rise in house prices, almost identical to the average seen over the past 12 months, with the steepest increases in Wales, northern Ireland and the north of England. A net 54% of respondents said rents had also risen.
First-time buyer deposits up more than 50%
The average deposit for first-time buyers has jumped by more than 50% over the last 10 years – even after adjusting for inflation. Those trying to get on the property ladder must now have a deposit of more than £45,500, compared to around £23,000 to £29,000 a decade ago, data from platform Stipendium shows.
RETAIL
Asda finance chief quits
Asda CFO John Fallon has resigned after less than a year in the job. Asda said Mr Fallon, who was promoted to the role last June, had decided to leave the business and "take on new challenges". He will be succeeded by Michael Gleeson, who last month said he was stepping down as finance chief at Morrisons.
ECONOMY
World Bank plans $170bn financing to ease ‘multiple crises’
The World Bank is preparing a $170bn package of financial help in response to a combination of economic factors which are hitting the poorest countries particularly hard. President David Malpass said there is a need for swift support as Russia’s invasion of Ukraine and coronavirus-related shutdowns in China have added to pressures caused by the pandemic, soaring inflation and probable interest rate rises, warning that he is “deeply concerned about developing countries.” Under proposals set to be discussed by World Bank member states, $50bn would be spent over the next three months, with a further $120bn of financing provided over the following year. The World Bank said the global economy is now expected to grow by 3.2% this year, compared with the 4.1% it had predicted in January.
Port problems prompt supply chain concerns
Analysis shows that 12% of goods being shipped globally are stuck at ports, with Chinese lockdowns raising concerns over a new supply chain crisis. Data shows blockages in global trade hitting the highest since the serious disruption seen last September when 14% of goods were blocked in ports. Deutsche Bank has warned that global supply chain problems could be part of a "very strong cocktail" causing inflation in the UK to surge above 8% until next year.
Food price inflation could double
Experts have warned that food price inflation could more than double in the coming months, with Russia’s invasion of Ukraine, labour shortages and soaring energy costs likely to push prices up. While Office for National Statistics data shows food inflation hit a decade high of 5.9% last month, forecasters believe the rate will hit 7% in the coming months. Clive Black of Shore Capital believes that the rate could climb as high as 12% over the summer.