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Daily News Roundup: Tuesday, 27th September 2022

Posted: 27th September 2022

BANKING

UK mortgage lenders pause new lending

A slew of banks and building societies have stopped offering new home loans as lenders rush to reprice mortgages following a steep rise in UK gilt yields. The Chancellor’s mini-Budget sent the pound down sharply and it hit a new record low of $1.035 against the dollar after Kwasi Kwarteng pledged further tax cuts at the weekend. The Bank of England has pledged to step in but has so far ruled out an emergency rate rise, sticking instead with its scheduled November 3rd review. Halifax, Virgin Money and Skipton Building Society said that they would withdraw fixed-rate deals for new customers amid higher funding costs and concerns that they would be swamped by desperate borrowers. Markets are now predicting that interest rates could more than double by next spring to 5.8% from their current 2.25%, to curb high inflation.

Bank of England stress tests to proceed

The Bank of England confirmed on Monday that Britain’s eight biggest banks will be stress tested on their ability to cope with rising global interest rates and the resilience of their retail divisions to market shocks. The scenario covers five years from end-June 2022, and includes the BoE's Bank Rate rising to 6% early next year and a 5% fall in British economic output, as well as a 31% slump in house prices. It will test "ring-fenced" retail arms of banks on a standalone basis for the first time, the BoE said. The test was adapted and delayed during the COVID-19 pandemic, but has now returned to its annual slot, with the results due mid-2023 to help the BoE determine capital levels.

Problem of online fraud worsens

Financial scammers tricked people out of £583m last year, up 39% from £420m in 2020. Banking industry data show 195,996 savers reported falling victim, up by 27%. Almost every category of bank transfer fraud rose last year. Of the more than £580m lost to bank transfer scams in 2021, more than half was never returned. Sam Richardson, deputy editor of Which? Money told the Express: "Clearly, this can't go on. We know that fraud continues to soar, yet protections are still falling short, raising questions about how banks treat victims."

UK regulators to consult on banker bonus cap

The Bank of England (BoE) and the Financial Conduct Authority (FCA) will hold a public consultation soon on plans to scrap a cap on banker bonuses. "We and the FCA will consult in the autumn," a spokesperson for the BoE's Prudential Regulation Authority said.

CONSTRUCTION

Housing stocks slump amid borrowing fears

Britain’s big housebuilders saw their shares fall on Monday as the prospect of higher mortgage rates soured sentiment towards housing stocks. Taylor Wimpey and Persimmon were down 6.9% and 6.3%, respectively; Berkeley Group was down 5.8%, Barratt Developments 4.9% and Bellway 6.2%.

FINANCIAL SERVICES

FCA urged to investigate sterling shorts

The Financial Conduct Authority is being urged to investigate whether leaks of Kwasi Kwarteng's mini-budget allowed hedge fund investors to make “small fortunes” by betting against the pound. Tulip Siddiq, the shadow economic secretary to the Treasury, said the watchdog needed to determine whether it was possible for traders to have used insider information to benefit from the fall in sterling. “The FCA should investigate any potential wrongdoing, to determine whether it is possible that any leaks or information provided by this Conservative government to their wealthy friends contributed to the collapse of the pound,” she told the Evening Standard. “A weaker pound means that imports such as food and energy will become even more expensive, at time when inflation and the cost-of-living crisis are already spiralling out of control.”

LV= appoints Hynam as chief executive

LV= has appointed David Hynam as its new chief executive. He succeeds Mark Hartigan, who is leaving the business at the end of the month. Mr Hynam is a 30-year industry veteran who has been chief executive of Bupa’s UK and global markets and of Friends Life, as well as chief operating officer of Axa. Simon Moore, LV= chair, said: “In securing the services of David Hynam, LV= has acquired a truly market-leading chief executive. He is the ideal candidate to help LV= continue to build a strong and sustainable future as a mutual life and pensions business and that our mutual values thrive for the benefit of our members.”

Rees-Mogg’s Somerset Capital in sale talks again

Somerset Capital Management is in discussions with potential buyers three years after rejecting a £90m bid from Artemis. Any offer is expected to be a fraction of that now, the FT reports.

HEALTHCARE

Outgoing Burberry executive to join GSK

Julie Brown, the outgoing chief operating and financial officer at Burberry, has been named as the chief financial officer at GSK. Brown will formally replace Iain Mackay in May next year and will work alongside Dame Emma Walmsley, GSK's group chief executive. It means that the drug group's two most senior executive leaders are women.

MANUFACTURING

Unilever chief executive to retire

Unilever chief executive Alan Jope has confirmed that he intends to retire at the end of next year after five years in charge. It comes after Jope's controversial attempt in January to acquire the consumer health division of GSK and follows the appointment of the activist investor Nelson Peltz to the board of Unilever. Jope said: "As I approach my fifth year as chief executive, and after more than 35 years in Unilever, I believe now is the right time for the board to begin the formal search for my successor. Growth remains our top priority and in the quarters ahead I will remain fully focused on disciplined execution of our strategy and leveraging the full benefits of our new organisation." Nils Andersen, the Unilever chairman, said that Jope's departure would "mark the end of a remarkable career with Unilever".

REAL ESTATE

LXI walks away from Sainsbury's deal

Property investor LXi REIT has walked away from a £500m deal to buy a portfolio of supermarkets from Sainsbury's, blaming the "current stock market volatility". Sainsbury’s had confirmed last week that it was in talks to sell and lease back 18 of its stores in the south of England in the deal with LXi. However, LXi has now confirmed that the company will not proceed further with the portfolio purchase or equity funding given the current stock market volatility. The Times reports that despite having exchanged contracts, LXi is not on the hook for any break fees.

RETAIL

Sterling woes will drive prices up by 15%

Analysts at Deutsche Bank warn that the drop in the value of the pound will push shop prices up by 15% over the next two years. Clothing, furniture and other items imported from overseas are most vulnerable to price rises. "It is inevitable that unless these pressures ease, some of the costs will have to be passed on to consumers in the form of higher prices," the British Retail Consortium said.

ECONOMY

Markets remain jittery despite statements from Bank and Treasury

The Treasury and the Bank of England put out coordinated messages on Monday in an attempt to calm markets panicked by a sharp fall in the pound following the Government’s decision to fund £45bn of tax cuts through increased borrowing. The Treasury said Kwasi Kwarteng will announce a package of supply side reforms next month as part of a “medium-term fiscal plan” which would include “changes to the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure”, as well as post-Brexit changes to financial services regulation. Details will also be provided on the Government’s fiscal rules and a clear plan to reduce government debt. BoE governor Andrew Bailey said the MPC will not hesitate to change interest rates by as much as needed to get inflation under control. Markets were looking for an emergency rate rise but Bailey said the MPC would not act until its next planned meeting in November, sending the pound down again after a slight recovery on Monday’s morning’s record low. Economists are now forecasting that rates will rise from 2.25% at present to as much as 6% next year.

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