BANKING
UK to freeze the assets of all Russian banks
Foreign Secretary Liz Truss has announced the UK will freeze the assets of all Russian banks within days, with the UK also set to prevent Russian banks from clearing payments in sterling. Delivering a statement in the House of Commons, Ms Truss said a “set of new powers against Russia’s financial sector” will deliver a “full asset freeze on all Russian banks.” She noted that once the legislation comes into force, the bar on clearing payments in sterling will be applied to Sberbank, Russia’s largest bank, with a full asset freeze on three further banks: VEB, Russia’s national development bank, Sovcombank bank, the third largest privately owned financial institution in Russia, and Otkritie, one of Russia’s largest commercial banks. Meanwhile, Chancellor Rishi Sunak confirmed that the Government will prevent Russian central banks from accessing cash in the UK. The move by the UK, the US and the EU means the Central Bank of the Russian Federation, the Russian National Wealth Fund and the Ministry of Finance of the Russian Federation will struggle to access cash reserves.
Bank of England mulls affordability stress test rethink
Rules introduced in 2014 to restrict the amount mortgage applicants could borrow may be reversed following a review by the Bank of England (BoE). The Financial Conduct Authority introduced strict rules governing how lenders assessed mortgage applications in the wake of the credit crunch, saying lenders had to consider the applicant’s income and expenses instead of lending borrowers a multiple of their annual salary. On top of these affordability assessments, rules from the BoE force lenders to “stress” this affordability should their mortgage rate be 3% more than its standard variable rate for two-year fixed rates. The Bank now believes the affordability stress test could be removed completely without jeopardising the economy’s stability. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said that while letting people borrow more money “looks like a risky move at a time when house prices are sky high and the outlook is uncertain,” the Bank is “convinced the extra test isn’t fair any more, and that without it, there are still enough protections in place.”
Record total pulled from cash Isas
Savers withdrew a record amount of money from cash Isas in the second half of 2021, with a total of £7bn withdrawn according to analysis of Bank of England data by AJ Bell. Laura Suter, head of personal finance at AJ Bell, said this marks the biggest outflows from Isas since they were launched in 1999, noting that “poor interest rates, the cost of living crunch and the dwindling appeal of cash Isas have all played into these outflows.” Data from Moneyfacts shows that the average stocks and shares Isa fund returned 6.92% between February 2021 and February 2022, while between March 2020 and March 2021 the average return was as high as 13.55%. In contrast, the average cash Isa rate returned 0.51% between February 2021 and February 2022 and 0.63% between March 2020 and March 2021.
Rothschild’s bumper year lifts bonuses
Bonuses at investment bank Rothschild & Co were up 67% last year after a bumper year advising on deals. The bank saw a 343% increase in net profit to €766m, with strong performances recorded in wealth management and private equity. The Anglo-French bank said total staff costs were up 33% to €1.45bn and that the bonus pool had been increased by 67%, partly because of exceptional results in the global advisory division. Executive chairman Alexandre de Rothschild said the bank had advised on an “unprecedented number of transactions, allowing us to deliver our highest full-year results ever”. He added that the bank expects activity levels “to remain strong through the first half of 2022, although we remain alert to respond and adapt if conditions change, particularly in light of current geopolitical events and market volatility.”
PRIVATE EQUITY
KKR founders pocket £80m payouts
Henry Kravis and George Roberts, who co-founded private equity firm KKR, each earned over £80m last year. The firm’s annual report shows they pulled in £50m from carried interest and a further £30m from dividends as a result of owning 10% of shares. The Mail notes that KRR’s founders, who stepped down as co-chief executives in October, took home far less than Blackstone chairman and CEO Stephen Schwarzman, who received a record £820m payout last year.
KPS pays $3.8bn for CRH business
Building materials group CRH has agreed to sell its building envelope business to private equity group KPS Capital Partners for $3.8bn.
INTERNATIONAL
Bank of Ireland sees profit jump
Bank of Ireland has posted its biggest annual profit since the global financial crisis. Ireland's largest lender by assets saw an underlying full-year pre-tax profit of €1.37bn - up from a €374m loss in 2020 when it set aside €1.1n to cover possible loan defaults owing to pandemic-related disruption. The bank wrote back €194m of those provisions, helping to almost double profits from the pre-pandemic €758m seen in 2019. Finance chief Myles O'Grady said a 12% rise in income year-on-year and a 4% drop in costs was a strong endorsement of its strategy to cut costs to €1.5bn by the end of next year. Its retail division in the United Kingdom, which includes its Northern Ireland business, had an underlying profit of £358m.
TD to buy First Horizon in $13bn deal
TD Bank Group will buy First Horizon Corp in an all-cash deal valued at $13.4bn. TD said it expects to incur total merger and integration costs of $1.3bn primarily in the first two years following close.
FINANCIAL SERVICES
UK urged to follow US lead on dirty money
Nicola Finnerty, a partner in the criminal litigation practice at law firm Kingsley Napley, says the UK’s approach to money laundering “needs a serious rethink” but warns that “what we don’t need, however, is more regulations or laws.” Writing for FT Adviser, she says the UK has a “wealth of rules already requiring banks, professional services companies and others to monitor and report potentially concerning activity” but there is a “lack of investment in resources to investigate and prosecute wrongdoers.” Ms Finnerty says efforts to address dirty money are hindered by the “absence of a joined-up approach” between the various agencies tasked with tackling the issue. She praises President Biden’s administration for launching a root-and-branch review of the US’ anti-money-laundering strategy and processes, with officials looking to bolster inter-agency information sharing. She goes on to note that the Financial Conduct Authority has dropped many criminal probes in favour of fines and civil penalties, “presumably because the latter is less resource intensive.”
LV adds two directors to board
LV has appointed Natalie Ceeney, the former head of the Financial Ombudsman Service, as independent non-executive director. She was appointed alongside Suzy Neubert, a senior independent director of Witan Investment Trust. Ms Neubert and Ms Ceeney had been drafted in to join the new board following a proposed acquisition by private equity firm Bain Capital, which LV later failed to get approval for from members.
LEISURE & HOSPITALITY
Holiday firms broke consumer law over refunds, court rules
The High Court has ruled that travel firms broke consumer law by delaying refunds for package trips cancelled during the pandemic, saying that Truly Travel and Alpha Holidays – which traded as Teletext Holidays and Alpharooms respectively – were legally required to return customers’ money within 14 days. The court action was launched by the Competition and Markets Authority and Andrea Coscelli, chief executive of the competition watchdog, said: “This should be a wake-up call to any business that thinks that it doesn’t need to honour customers’ refund rights.”
MEDIA & ENTERTAINMENT
RT faces Ofcom investigations
Media regulator Ofcom has launched 15 investigations into RT's coverage of the conflict in Ukraine and will look into whether the Russian state-backed news channel has broken impartiality rules. Ofcom said it had noticed a "significant increase" in the number of programmes warranting investigation under its broadcasting code. The watchdog said the investigations will be conducted swiftly "given the severity and urgency of the current crisis.” Ministers last week asked Ofcom to review RT's UK broadcasts, saying it "is demonstrably part of Russia's global disinformation campaign".
REAL ESTATE
Economists expect house price rises
The outlook for Britain's housing market has barely changed in the last three months, a Reuters poll has found. With the Bank Rate only expected to reach a still-historically low 1.00% by mid-year, coupled with a lack of supply, house prices were still expected to rise 4% this year and 3% next, the poll of 18 property market experts found - broadly unchanged from December predictions. When asked how high the Bank Rate would have to go this year to significantly slow housing market activity the median was 1.50%. Asked about the value of national house prices on a scale of 1 to 10 from extremely cheap to extremely expensive, the median response was 7, matching December's estimate.
RETAIL
High street sales bounce back
High street sales returned to higher than pre-pandemic levels in January, outdoing levels seen two years ago in around three-quarters of local authority areas. Spending in the average local authority was 4% higher than in January 2020. High streets seem to be bouncing back after a challenging two years amid the pandemic, with more than 17,000 chain outlets closing across 2021. There was a net decline of 10,059 last year after 17,219 chain store branches closed, compared with just 7,160 openings.
ECONOMY
Inflation expectations climb to record high
Britons’ expectations for inflation in ten years’ time have hit at a joint record high, a survey by Citi and YouGov has found. Households think the cost of living will land at 4.1% in a decade’s time, up from 3.8% last month. Inflation is currently at its highest rate in nearly 30 years, according to the Office for National Statistics, hitting 5.5% in January. While the Bank of England (BoE) has said the rate of price rises will peak at 7.25%, analysts believe soaring prices and the increased energy price cap could see inflation hit the 8% milestone in April, with forecasts of peak inflation increased in the last week over concern that Russia’s invasion of Ukraine could have an impact on the supply of energy. Financial markets expect the BoE to increase interest rates to 0.75% from 0.5% this month, and for rates to reach 1.5% by August. Reflecting on the poll’s findings, Benjamin Nabarro, an economist at Citi, said the data, "especially the level of long-term expectations, suggest a growing risk that expectations could become de-anchored.”
Inflation set to trend higher as wages climb
Inflation will trend higher in the coming months as businesses lift prices to cope with intensifying wage pressures, according to research by Lloyds Bank. The poll of 1,200 companies shows 25% of businesses plan pay rises of 1%-2% over the next 12 months, while 23% plan 2%-3% pay rises and around a quarter expect pay to rise by 3% or more. With half of firms expecting to hike pay over the coming year, they are set to increase prices to protect margins. The survey also found that despite inflationary fears, business confidence climbed to a five-month high of 44%, with this driven by optimism about supply chain disruption easing and improving trading conditions. Hann-Ju Ho, senior economist at Lloyds, said: “It’s extremely encouraging to see such an improvement in business confidence reaching its highest level since September, fuelled by trading prospects reaching their highest level since the start of pandemic.”
OTHER
Investors warn companies on diversity before AGMs
Investors managing funds worth nearly $15trn have written to some of Britain's biggest companies, advising that they fall short in regard to racial and ethnic diversity goals and warning that they face opposition at their annual shareholder meetings. The 30% Club UK Investor Group has written to all FTSE 100 companies yet to have at least one minority ethnic board member. It declined to name the firms, noting that non-compliant companies would be revealed when the Government-backed Parker Review next reports on progress. Diandra Soobiah, co-chair of the30% Club UK Investor Group, said: “Diversity and inclusion in companies are integral to sound corporate governance and corporate culture,” adding: “As long-term investors, we see the failure to take diversity seriously as a stark warning about the long-term sustainability of the company.”
2022 set to deliver dividends record
Global dividend payments will hit a new record this year, fund manager Janus Henderson has predicted. The firm, which compiles a global dividend index, estimates that worldwide payouts will reach $1.52trn this year, exceeding the $1.47trn paid out the year before. The report suggests that mining and banking dividends would be the "main engine of 2022 dividend growth". Banks accounted for about $50.5bn of the total dividends paid last year, while miners distributed $96.6bn.