BoE scraps mortgage affordability test
Mortgage borrowing rules have been eased after the Bank of England scrapped an affordability test which forced lenders to calculate whether potential borrowers would be able to cope if interest rates climbed by up to 3%. While removing the stress test may help some potential borrowers - such as the self-employed or freelance workers - get loans, other rules such as strict loan-to-income limits will not make it easier for most people to get a mortgage. The shift comes after a 2021 review of the rules saw the Bank of England's Financial Policy Committee declare that the loan-to-income (LTI) flow limit “is likely to play a stronger role than the affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households in a scenario of rapidly rising house prices." The Financial Conduct Authority's responsible lending rules still require lenders to make a broad assessment of affordability before approving a loan. Mark Yallop, chairman of the Financial Markets Standards Board, said although the change would make it "slightly easier" for some borrowers to get a mortgage, he did not think with would have a significant impact as “the biggest constraint on new mortgages is the ability of borrowers to afford a deposit.”
HSBC makes dividend pledge and resists split call
HSBC has slashed banker bonuses and pledged to restore dividends to pre-pandemic levels. This comes as the bank attempts to appease investors, including Chinese insurer Ping An, which is pushing to split up the lender. HSBC yesterday reported flat pre-tax profits of $5bn for Q2, beating analyst estimates of $3.9bn but falling short of the $5.1bn recorded in Q2 2021. The bank revealed better than expected first-half pre-tax profits of $9.2bn. While this was down from $10.8bn a year earlier, City analysts had been forecasting a bigger fall, to about $8.15bn. The 15% fall in profit comes as the bank booked a $1.1bn charge for expected credit losses. The decline resulted in a lower bonus pool for bankers. CEO Noel Quinn said HSBC is “confident” of generating a return on tangible equity, which is a key measure of profitability, of at least 12% from next year. The bank had previously been aiming for at least 10%. Mr Quinn also pushed back against the calls for a demerger or spin-off of its Asian business, saying: “Look at the half-year results and you'll see the value of the current strategy."
Buy-to-let lender shows positive business
Paragon Banking Group said that total advances between October 1 and June 30 were up by almost 17% year-on-year to £2.2bn, while net loans had risen by 7.2% to £14bn. The firm, one of Britain's leading buy-to-let lenders, said its portfolio was resilient despite growing fears about the wider economy. Only 0.15% of its buy-to-let portfolio was three months or more in arrears, down from 0.28% a year earlier.
Banker 'infuriated' by £300k bonus
City banker Fabio Filippi was left ‘infuriated’ because bosses only awarded him an annual bonus of £300,000, an employment tribunal heard. He said the payout from BNP Paribas London was “unacceptable,” having received more than £100,000 more the previous year. The bank felt the banker’s work had dropped off and he ended up being sacked as he was deemed an "expensive resource who didn’t add value," the tribunal heard. Mr Filippi - who had a combined salary package of nearly £700,000 at its highest - has now lost an unfair dismissal case against the bank.
Deutsche 'broke bank's own rules to enable tax fraud'
An internal investigation has found that Deutsche Bank allowed clients to syphon off millions of euros in state funds in one of Europe's biggest tax frauds. Deutsche's internal investigation, which dates back to 2015 and was conducted by law firm Freshfields, identified a "number of breaches of legal or regulatory requirements or internal policies." The report found that Deutsche generated millions of euros in fees by knowingly providing investment banking services to clients that specialised in cum-ex trading. While the bank's tax department tried to stop it engaging in cum-ex activities, investment bankers were found to have worked around that ban.
SEC busts cryptocurrency pyramid scheme
The US Securities and Exchange Commission (SEC) has charged 11 people for their roles in creating and promoting a fraudulent crypto pyramid and Ponzi scheme that raised over $300m from retail investors. According to the SEC's complaint, Forsage allowed investors to enter into transactions via smart contracts and allegedly operated as a pyramid scheme for more than two years. It also allegedly used assets from new investors to pay earlier investors in a typical Ponzi structure.
Credit Suisse pays £250m to keep staff
Credit Suisse granted almost £250m in retention awards in July as it looked to keep hold of senior staff. The bank said: “This compensation will be expensed in the investment bank division over a three-year vesting period from the grant date.”
FCA to impose marketing restrictions for high-risk investments
The Financial Conduct Authority (FCA) has strengthened rules to tackle misleading adverts that promote investing in high-risk products, saying it wants to reduce the number of people investing in high-risk products which do not reflect their risk appetite. The City watchdog warned that consumers are “clicking through” and accessing high-risk investments without understanding the risks involved. Under the FCA’s new rules, firms must use clearer and more prominent risk warnings, while investing incentives such as refer a friend or new joiner bonuses will be banned. The watchdog’s classification of high-risk investments has also been simplified. Sarah Pritchard, the FCA’s executive director of markets, said: “Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too.” She added: “Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act.” It is noted that the new rules do not apply to crypto asset promotions, as the FCA is waiting for legislation to confirm how crypto marketing will be brought under its remit.
Economic downturn hits factories
With inflation driving up prices and hitting demand, activity in the British manufacturing sector fell to a 25-month low of 52.1 in July, with this down from 52.8 in June, according to the S&P Global/CIPS purchasing managers’ index (PMI). Prices are up 9.4% over the last year, the steepest increase since 1982. New orders for factories’ products fell for the second month in a row for the first time for two years. The PMI remained above the 50 point threshold that separates growth and contraction as manufacturers pushed to complete work that had been delayed due to a shortage of resources. Rob Dobson, director at S&P Global Market Intelligence, said that the UK manufacturing sector “shifted into reverse gear at the start of the third quarter.” Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, commented: “The output balance dropped to 48.9 - its first sub-50 reading since May 2020 - from 50.3 in June. In addition, the new orders index dropped to 46.9, from 48.3, while the future activity index was at its joint-lowest level since May 2020.”
MEDIA & ENTERTAINMENT
Sorrell turns to former boardroom colleague
Sir Martin Sorrell is turning to a former boardroom colleague to help rebuild investor confidence in S4 Capital, with Colin Day, who was a non-executive director at WPP Group, set to be named as the new chair of S4's audit committee. The appointment will reunite Mr Day, who will join the board of S4 as a non-executive director, him with Sir Martin, WPP's founder and former chief executive.
Half of first timers bank on mum and dad
With house prices and mortgage rates continuing to climb, analysis suggests one in two first-time buyers will rely on the so-called Bank of Mum and Dad to purchase a home. It has been calculated that around half of buyers will use money from their parents to help get on the ladder over the next three years, with this support totalling £25bn. The report says that parents will lend £8.4bn to help their children buy homes this year, with this 68% more than in 2019, the year before the pandemic. It is forecast that the Bank of Mum and Dad will support 160,000 first-time buyer purchases this year – nearly a fifth more than in 2019 – while 469,000 first-time buyers will get financial help from their parents in the three years to 2024. Parents lent £10.7bn to 198,000 first-time buyers in 2021, with both of these figures breaking records.
JD Sports forced to offload Footasylum
JD Sports is set to sell its Footasylum chain following a long battle with the Competition and Markets Authority (CMA). The business will be sold to German asset management firm Aurelius for £37.5m - a substantial loss on the £90m JD Sports paid for it three years ago. The CMA had ruled that the merger between JD Sports and Footasylum could lead to less choice and a "worse deal" for customers.
Households struggle to cut back
A survey from Legal and General suggests that households are struggling to find any more areas of spending to cut back amid the cost of living crisis, with more than one in ten saying there will be nothing else to cut from their budgets after October’s energy price cap increase. Nearly a third of households with income less than £20,000 will be unable to cope with a rise in energy bills, with the cap on energy costs potentially rising by more than 60% this autumn. Nearly half of the 20,000 people polled voiced concern about keeping up with their mortgage payments over the next year. Nigel Wilson, chief executive of Legal and General, said: “Many households across the UK are currently facing very tough financial choices. For some, those choices seem impossible.”
Inflation expectations decline
A YouGov poll for investment bank Citi shows that expectations for future inflation declined in July, with the public saying inflation will settle at 3.8% in five years, down from 4% in June. Asked where inflation will be in 12 months, Brits think inflation will drop to 6%, down from 6.1% a month earlier. Despite predicting a decline in price rises, consumers still think inflation will be nearly double the Bank’s 2% target in five years.