BANKING
UK banks reduce number of low-deposit mortgages by half
Data from Moneyfacts show the number of low-deposit 95% mortgages on sale has fallen by more than half since last month’s scrapped mini-Budget. Just 137 were available on Monday, down from 283 on 23 September. Some brokers say such products could be withdrawn altogether if lenders think house prices are set to fall sharply, pushing some borrowers into negative equity. However, Skipton Building Society has today launched a range of new products including several 95% deals. Moneyfacts also revealed that the number of new standard mortgage deals on sale was slowly increasing standing at 3,067 on Monday. At the beginning of the month the figure was down to 2,258. Additionally, HSBC and Coventry Building Society will cut rates on fixed and variable mortgage deals over the next two days. "There's a ton of uncertainty, but I think we would expect to see more lenders making improvements," said Peter Gettins from the mortgage broker L&C.
Shawbrook weathering economic turmoil
Shawbrook Bank said on Monday that its arrears rate, which measures loans that are at least two payments late, dipped to 1.8% at the end of September, from 1.9% three months earlier. Marcelino Castrillo, the lender's chief executive, said: “While we do not yet see any material worsening of credit risk profiles across the book, our investments in technology and data to enhance our risk management capabilities, coupled with our investment in human expertise, ensure that we remain prepared for a more challenged economic cycle.”
Morgan Stanley: Millions face difficulty paying mortgage
A report from Morgan Stanley warns that 30-40% of households in lower income brackets will face difficulties paying their mortgages if rates hit 6%. The US bank said there is “significant stress” building in the UK's mortgage market, as house price continue to rise and the Bank of England keeps rising rates in an effort to tame inflation.
INTERNATIONAL
Credit Suisse settles tax fraud allegations
Credit Suisse has agreed to pay €238m to settle tax fraud allegations brought by French authorities. An inquiry was launched in 2016 to probe claims the bank was courting wealthy French customers to persuade them to open accounts in Switzerland without declaring them to French tax authorities. Credit Suisse was alleged to have made €65m from the accounts over a seven-year period. “The bank is pleased to resolve this matter, which marks another important step in the proactive resolution of litigation and legacy issues," the company said in a statement. However, Credit Suisse did not acknowledge criminal liability in the settlement. Meanwhile, Credit Suisse's Chief Compliance Officer Rafael Lopez is set to leave the bank in the coming weeks after spending little more than a year in the post. Credit Suisse is scheduled to release details of a much-anticipated strategic review alongside its third-quarter results on Oct. 27th.
California-based Marqeta launches new banking products
Payments-focussed fintech firm Marqeta is launching a suite of new banking products as it strives to deepen its relationships with customers including Coinbase, Uber and DoorDash. The new "banking as a service" platform includes 40 new application programming interfaces, or APIs, that will be offered through Marqeta’s existing bank partners to provide customers with "demand deposit" accounts, early-pay capabilities and instant funding, along with other features. Co-founder Jason Gardner commented: “We're pretty certain this is where the world is going to move, and we've had a good track record thus far of being able to predict what companies need from financial services infrastructure and helping them along the way.”
Consumer group sues bank's Deutsche Bank's DWS
A German consumer group is suing Deutsche Bank's asset management unit DWS for allegedly misrepresenting a fund's green credentials in marketing materials. It comes as US and German officials investigate claims that DWS had "greenwashed" products. Asoka Woehrmann resigned as chief executive of DWS in June after German prosecutors raided the offices of DWS and Deutsche Bank in Frankfurt over allegations of greenwashing and misleading investments.
FINANCIAL SERVICES
FCA to probe Big Tech's move into payments
The Financial Conduct Authority (FCA) has launched a review into Big Tech’s move into payments, deposit taking, consumer credit and insurance. While the FCA acknowledged that the involvement companies such as Alphabet, Amazon, Apple and Meta could bring innovation and benefits to consumers “by increased efficiency and delivering healthy competition”, it said they “could pose competition risks if they rapidly gain market share, and they are able to exploit market power”. Sheldon Mills, executive director of consumers and competition at the FCA explained: “Across the world, we've seen the capability of Big Tech to offer transformative new products in areas such as payments, deposits and consumer credit”. He added: “We want to make sure that these benefits are fully realised while, at the same time, ensuring good consumer and market outcomes. This is vital when we consider the role of Big Tech firms in the provision of key technological infrastructure like cloud services.”
Ratings agency urges rule change to avoid pension fund crisis
S&P Global’s head of European credit research has urged central banks and regulators to relax rules relating to collateral demands to make it easier for pension funds, hedge funds and other market participants that use leverage to raise cash quickly in times of financial stress. Paul Watters said the recent turmoil involving funds using liability-driven investment strategies was a “liquidity event rather than a solvency event” and in future funds should be able to provide other assets as security should market forces require them to provide liquidity. “How big those facilities need to be depends on how volatile those markets are,” he added. His comments come as Bank of England officials review the merits of LDI strategies with an eye on improving the resilience of funds during times of financial stress. Meanwhile, the Institute and Faculty of Actuaries defended LDI pension funds, calling for “an open discussion” with regulators about how to protect consumers.
Carney: UK finance can lead on climate transition
Former Bank of England governor Mark Carney told MPs on Monday that Britain can lead the world on climate reporting. He cited former Chancellor Rishi Sunak’s plans to make the UK the world’s first ‘Net Zero Aligned Financial Centre’ at Cop 26 last year. Mr Carney, now UN Special Envoy on Climate Action and Finance, said Mr Sunak’s push had spurred British regulators to set the most ambitious targets on net zero by subjecting firms to mandatory climate reporting requirements, in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. As a leading international financial centre, Carney continued, it is right that the UK plays a leading role in shaping climate transition policies and by developing a “gold standard” plan it would encourage other countries to follow. However, Mr Carney’s project has been rocked by setbacks in recent months, with a slew of major companies withdrawing amid concern they could face legal action from shareholders and regulators for taking guidance on investment decisions from a UN campaign.
Investors pull record £27.9bn from UK funds
UK funds saw record outflows of £27.9bn last month as the mini-Budget and political turmoil sent shockwaves through the market. Research from investment data firm Refinitiv Lipper shows all asset classes were hit, with equity funds suffering the most as more than £13.6bn was pulled by investors. Alternative assets saw £5.1bn leave while funds holding bonds were hit by £4.7bn worth of redemptions. Head of Lipper Research for UK and Ireland Dewi John said: “Surprisingly, no single month during the global financial crisis comes close.” Mr John added that it was not clear where the capital was being deployed, but his guess was people were moving to pay off mortgages, or stockpile tinned food.
RETAIL
Frasers Group increases Hugo Boss stake
Frasers Group has confirmed it has increased its stake in Hugo Boss to £840m. Mike Ashley's retail group said it now held 3,025,000 shares of common stock – 4.3% of Hugo Boss’s total share capital – as well as 20,089,000 shares of common stock via the sale of put options, representing 28.5% of Hugo Boss’s total share capital. Frasers Group said the new investment would offer it “new opportunities” and help support the “long-term future of the existing retail businesses”. Retail analysts said Frasers could use its investment in Hugo Boss to negotiate better terms on commercial arrangements that it already has with the company.
ECONOMY
Bank of England in talks with Treasury ahead of Chancellor's statement
Bank of England official are locked in talks with Treasury mandarins as they seek to avoid a repeat of last month’s market disruptions. Sir Dave Ramsden, a deputy governor at the Bank, said the cost of any future energy bailout scheme is being considered ahead of what is expected to be a bleak update on the public finances. Speaking to MPs on the Treasury Select Committee, Sir Dave said: “We are already engaging with Treasury officials who in turn are engaging with the Office for Budget Responsibility (OBR) on the elements that will go into the 31 October announcement. A particularly important one for us is what the new energy price guarantee will look like. That will be a key element. It will have a bearing on the path of inflation.” He also said government borrowing costs remained higher than before September's mini-Budget, adding: "Credibility is being recovered, at least on that benchmark measure, but that has to be followed through," he said, adding that a return to "stability around policymaking and around the framing of fiscal events will be really important".
Political turmoil and soaring prices could plunge UK into recession
The latest S&P/CIPS PMI survey indicates that Britain’s private sector economy shrank sharply this month, with contraction rates returning to levels last seen in January 2021 when the country was in the grip of the longest COVID-19 lockdown. The index for October slid from 49.1 in September to 47.2 – well below the 50 point threshold that separates growth and contraction. The services PMI fell to 47.5 from 50, driven by ”squeezed household budgets, recession concerns and delayed business investment decisions due to political uncertainty,” the survey said. The PMI for the manufacturing sector fell to 45.8 in October from 48.4. “While the economic downturn has led to reduced upward pressure on prices, the weak pound and high energy costs meant that input cost inflation remains higher than at any time in the survey’s history prior to the pandemic,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
OTHER
Rishi Sunak to become UK prime minister
Rishi Sunak was crowned Tory leader on Monday after MPs overwhelmingly backed the former Chancellor. He will be installed as the UK’s latest Prime Minister after an audience with the King today. Mr Sunak lost to outgoing PM Liz Truss in September, but this time Tory members were denied a vote as Mordaunt failed to reach the threshold of 100 nominations, leaving many livid and dozens quitting the party. Mr Sunak's leadership rival Penny Mordaunt withdrew from the latest contest minutes before the result was announced, admitting it was "clear that colleagues feel we need certainty today". Labour and the Liberal Democrats called for an immediate General Election arguing that Mr Sunak had no mandate to lead the country. Financial markets responded positively on Monday with long-term gilt yields down slightly and the pound up by as much as 0.9% in early trading before falling back.