BANKING
BoE to scrap mortgage affordability rules
The Bank of England plans to scrap mortgage affordability tests even as interest rate rises increase. Rules rolled out following the financial crisis prevented banks from handing loans to anyone who could not afford the repayments in the event that the reversion rate went up by three percentage points. The Bank now intends to scrap these rules as of August 1, saying an existing limit on mortgages with a high loan-to-income ratio and the Financial Conduct Authority’s (FCA) other required affordability checks “ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way.” Existing parameters will be replaced by looser Financial FCA rules based on expected future interest rate rises, which require a minimum stress test of 1 percentage point above a borrower’s mortgage rate. Lewis Shaw, of Shaw Financial Services, said making it easier to borrow larger amounts will “increase demand, pushing up house prices while taking out any sort of stabiliser” in the market. Andrew Wishart at Capital Economics believes the move will fuel competition among banks, which was “a bit of a risk” when it comes to hazards in the system.
PRIVATE EQUITY
Private equity groups make Euromoney takeover bid
Private equity groups Astorg and Epiris have approached Euromoney Institutional Investor, proposing a £1.6bn buyout of the FTSE 250-listed financial publisher. The offer values the company’s equity at about £1.6bn. Russ Mould, investment director at AJ Bell, said: “A takeover would be a short-term win for shareholders but it would also see yet another quality business leave the UK stock market.”
INTERNATIONAL
Jyske to buy Handelsbanken’s Danish operation
Danish lender Jyske Bank has agreed to buy the Danish operation of Sweden's Handelsbanken. Handelsbanken last October said it would exit Denmark and Finland as it saw little chance to grow without making major investments in those markets. Jyske Bank CEO Anders Dam said: “The acquisition of Handelsbanken Denmark is an attractive opportunity to strengthen our market position and long term competitiveness,”
AVIATION
EasyJet faces £200m hit over scrapped flights
EasyJet is scrapping thousands of services over the summer, saying it is “proactively consolidating” flights over the next few months at airports most affected by staff shortages. Analysts say the pre-emptive action could cost the budget airline up to £200m. EasyJet is cutting capacity this month to about 87% of pre-Covid 19 levels, from a previously forecast level of 90%. It now intends to expand to 90% from July until September, lower than the 97% level previously forecast.
CONSTRUCTION
Housebuilders tank on stock market
Housebuilders have dropped on London Stock Exchange’s on the back of the latest house price data. Barratt Developments and Berkeley Group were the biggest fallers, dropping a little over 4% each. While Persimmon was down 3.7%, Ashtead slipped 2.8% and Taylor Wimpey tumbled 2.5%. The dip into the red comes off the back of property site Rightmove’s House Price Index, which forecasts that record house prices will begin to slow, with moving house slipping down list of financial priorities amid the cost of living crisis.
Modular housebuilder aims to build new home every hour
A modular housing firm is to open a new factory in Northamptonshire from which it claims it can manufacture a new home every hour. TopHat, which is backed by Goldman Sachs, is opening the site late next year. It will be 650,000 sq ft, making it the biggest modular housing factory in Europe. TopHat believes the facility will help to address the chronic undersupply of new houses in the UK.
FINANCIAL SERVICES
Restrictions on City bosses’ pay could be scrapped
Downing Street has asked ministers to ease restrictions on City bosses’ pay, with Steve Barclay, the Prime Minister’s chief of staff, writing to Chancellor Rishi Sunak with a plan for “deregulatory measures to reduce the overall burden on business” and attract more firms to the UK. The plan calls for the removal of restrictions on director - and specifically non-executive director (NED) – remuneration, “as suggested by the London Stock Exchange Group to improve London’s attractiveness for listings.” The letter calls for Business Secretary Kwasi Kwarteng to outline “deregulatory measures to reduce the overall burden on business”, going on to refer explicitly to the need to change curbs on bosses’ pay. Changes reportedly being considered by the Department for Business, Energy and Industrial Strategy include amending the UK corporate governance code to allow NEDs to own more shares in the company.
Shareholders revolt over Peltz fund board
Activist investor Nelson Peltz has seen two asset manager firms in which he owns noteworthy stakes demand a boardroom clear-out at his London-listed fund. A group of investors, including Invesco and Janus Henderson, have served notice for an extraordinary meeting at Trian Investors 1 (TI1). Warning that the “conduct of the TI1 board raises serious and concerning governance issues that cannot be ignored,” they want other shareholders to back a call to remove three of the four board members. Invesco, Janus Henderson and several other investors who, between them, speak for 43.6% of TI1, said they are unhappy with the way the board amended the fund's investment policy. The investors say they want to "achieve an acceptable standard of governance and restore the trust and confidence" in the listed fund. Mr Peltz joined the board of asset manager Janus Henderson in February, having built up a 19% stake, while Trian also owns a 12.2% stake in Invesco.
Rathi: Regulators must be more transparent with data use
Financial Conduct Authority (FCA) chief executive Nikhil Rathi says regulators must ensure that firms can show not only how data was gathered or stored, but why it was important in the first place. He added that firms would also need to detail how they avoid data being used to discriminate against minorities and people with other protected characteristics. Mr Rathi also said that international coordination in this area “is becoming increasingly important – both in terms of effectively protecting consumers from the increased risks of digitalisation and from gamification across the provision of financial services.”
RETAIL
Retailers fear online sales tax and rates reform could be abandoned
Senior retail executives are set to meet with Lucy Frazer, the financial secretary to the Treasury, amid concerns that ministers may opt against introducing an online sales tax and reform the business rates system. The Retail Jobs Alliance has written to Chancellor Rishi Sunak to make the case for an overall cut in business rates for all retail premises, saying they are open to funding through the introduction of a new online sales tax. While the retailers back a new levy, a new report suggests an online sales tax would add to inflation. The study from the Centre for Policy Studies think-tank and Coalition for a Digital Economy lobby group says a levy on businesses' internet sales would be passed straight on to shoppers by the vast majority of retailers.
Primark reports boost in sales, trials click-and-collect service
Associated British Foods (ABF) has reported an 81% year-on-year rise in sales at Primark for the 12 weeks to May 28, with the increase largely attributed to the fact that the majority of its stores were closed until the middle of April in 2021. Compared to pre-pandemic levels, total sales were 4% up, while like-for-like sales remain 9% below 2019 levels. ABF added that total UK sales were up by 61% on last year, while like-for-like UK sales were 4% below pre-pandemic levels.
M&S hires managing director of food business
Former Tesco executive Alex Freudman has been appointed as the new managing director of Marks & Spencer's food business, marking the final reshuffle of M&S leadership following the departure of CEO Steve Rowe.
ECONOMY
Policymaker calls for higher interest rates
Bank of England policymaker Catherine Mann believes interest rates should be increased more aggressively to shore up the pound, warning that sterling's weakness is adding to Britain's inflation pressures. Ms Mann, a member of the Bank’s Monetary Policy Committee (MPC), suggested that a “more robust policy move ... reduces the risk that domestic inflation already embedded is further boosted by inflation imported via a sterling depreciation.” She also said there were signs that the jump in inflation in Britain - which hit a 40-year high of 9% in April - was becoming more embedded and persistent. She warned that incoming data on inflation “show increasingly domestic embeddedness, persistence, and momentum.” The MPC last week voted for a 25 basis point increase which took the interest rate to 1.25%. Ms Mann voted for a 50 basis point increase but was outvoted by six other rate-setters on the nine-strong panel.
OTHER
Ofgem to limit direct debit overpayment
Energy regulator Ofgem is looking to better protect customers who pay their bills through direct debit. It has proposed tighter rules on accumulated credit and the level of direct debits that suppliers can charge to "ensure credit balances do not become excessive." Ofgem also wants to protect credit balances when suppliers fail so the costs are not picked up by customers. The new plans would mean energy companies must protect their customers' money if they go bust and pass on the funds from accounts which are in credit to the replacement supplier. Ofgem has accused some firms of using customers' accumulated credit like an "interest-free company credit card."