BTG ADVISORY
Zombie firms present a stubborn problem
David Abbott of BTG Advisory says the origin causes of zombie firms will maintain pressure on banks and the government when it comes to managing distressed SMEs and corporates, with this likely to skew banks’ preferred strategy towards corporate turnarounds, rather than insolvencies. He warns that zombie firms are a stubborn problem to solve but says there are several ways to combat the threat that they pose. These include the government’s policy response, the Pay As You Grow scheme; a possible government vehicle that manages debt issued under the coronavirus loan schemes that could be converted into equity; and debt restructuring and forgiveness. Mr Abbott highlights the value of making informed decisions early in the current climate, saying SMEs need to scrutinise financial health more forensically and more frequently than is necessary in less extreme conditions.
BANKING
Cladding scandal could trigger another banking crisis
The cladding scandal could trigger another banking crisis if leaseholders are forced to pay for repairs, MPs have been warned. Former Bank of England economist Dean Buckner said widespread mortgage defaults could spark another crisis like the credit crunch of 2008. He told the Commons Housing Select Committee that mortgage defaults would erode capital lenders have set aside to “absorb losses”, warning: “If banks become clearly in trouble, that then affects all of us, because we all have money with banks.” Speaking to the Mail, Mr Buckner warned mortgage defaults could prompt banks to restrict lending to all borrowers, while some could collapse. He said: “If the market gets even a sense that this is happening, then you could get runs on the banks, such as we saw with Northern Rock and HBOS.”
Banks to detail competition boosting plan
The banking sector is set to unveil plans for a not-for-profit entity to oversee its attempts to improve competition via the open banking initiative, with a UK Finance report set to outline plans to comply with recommendations made by the Competition and Markets Authority in 2016.
Barclays court win a ‘hollow victory’
Ben Marlow in the Telegraph reflects on the High Court decision to dismiss financier Amanda Staveley’s damages claim against Barclays, describing it as “the very definition of a hollow victory” for the bank, with the judge saying it was “guilty of serious deceit”, former boss John Varley was “disingenuous” with his evidence and the bank’s Roger Jenkins gave evidence that was “clearly unsatisfactory and implausible”.
PRIVATE EQUITY
Spac dealmaking sets new record
Special purpose acquisition companies struck 50 deals in February, according to Refinitiv, with a record $109bn of transactions signed. In January and February, Spacs accounted for more than 20% of dealmaking activity.
INTERNATIONAL
Bank of Ireland pivots to digital
Some 103 Bank of Ireland branches are to shut as the lender focuses on its growing online customer base. It announced that 88 branches in the Republic of Ireland will start closing down in September, reducing the network to 169, while in Northern Ireland it will shut down 15 of its 28 branches. Meanwhile, Bank of Ireland said it recorded an underlying loss of €374m in 2020, having seen a return to profitability in the second half. It set aside €1.1bn to cover possible loan defaults due to COVID-19 disruption.
AVIATION
Norwegian carrier sees shares up 30% after listing
New Norwegian airline Flyr has seen its shares rise almost 30% as the company went public in Oslo. The firm plans to complete its maiden flight by the middle of the year, and raised 600m Norwegian crowns (£50m) at its recent float.
FINANCIAL SERVICES
FCA scraps bonuses for senior staff
The Financial Conduct Authority (FCA) is to scrap performance-related pay and bonuses for senior executives, with salary cuts also on the cards following criticism of the City watchdog’s handling of the London Capital & Finance scandal. Giving evidence to the Treasury Select Committee, FCA chair Charles Randell told MPs that there would be a crackdown on remuneration, saying: “We decided that the consequences that flow from this should be collective.” Telling the committee that mistakes made over LCF had prompted the board to cancel bonuses for the executive committee for 2019/20, Mr Randell added: “For 2021 there’s been a discussion about performance-related pay”, with the executive committee also deciding that it would be “wrong for them to be considered for performance-related pay in the current year,” given the impact of the pandemic. Reflecting on the wider system, including the Financial Services Compensation Scheme and the Financial Ombudsman Service, Mr Randell said the majority of staff were dealing with “cleaning up the mess” relating to problems that had already happened, rather than prevention.
Investors save £120m after fund contract switch
Investors with cash in overpriced fund contracts will save £120m per year after asset managers moved savers into cheaper alternatives. Analysis by research firm Fitz Partners shows that the DIY investors in around 600 funds have been moved to cheaper share classes, saving an average of 50% on fees. The money had been in contracts that paid commission to financial advisers who sold them the funds. This follows the introduction of new rules by the Financial Conduct Authority in 2018 which opened the door for firms to bulk transfer customers to new contracts. Invesco transferred 107,000 customers from to cheaper share classes last year, while Jupiter moved 49,000 investors, Columbia Threadneedle switched 30,000 customers while Schroders moved 26,000. BlackRock says investors will save £4m after switching customers from more expensive share classes.
City watchdog yet to quiz Woodford
The Telegraph’s Lucy Burton reports that the Financial Conduct Authority (FCA) has yet to formally interview Neil Woodford about the collapse of his investment firm over 18 months ago. Amid criticism over the pace of the probe into the failure of the business, Alan Miller, who runs wealth manager SCM Direct and campaigns for transparency in the industry, has called for the Treasury Select Committee to demand an investigation into the matter by an independent QC or judge. Ms Burton cites an insider at the City watchdog who says it is normal for interviews to take place later in an investigation after evidence is collected.
43% of finance firms move jobs to the EU
A new report shows that 7,600 jobs in the financial sector have moved abroad because of Brexit, with 100 relocated since October. In total, 43% of businesses in the sector have moved or plan to move some of their operations or staff to the EU. Dublin and Luxembourg are the most popular alternatives to Britain.
Greensill funds frozen
Credit Suisse has suspended funds investing in Greensill Capital's products, freezing $10bn worth of funds linked to Greensill, while SoftBank has substantially written down its $1.5bn investment in the lender. Greensill is believed to be in talks over a $100m sale of its operating business to Apollo Global Management.
LEISURE AND HOSPITALITY
Entain raises bid for Enlab
Entain’s offer for Swedish rival Enlabs has been increased to some £310m. The Ladbrokes owner’s chief executive Rob Wood commented: “Entain is able to provide the scale and platform needed to further support Enlabs’ long-term growth, and we firmly believe that Entain will be the best home for Enlabs, its employees and customers.” Alta Fox, the largest shareholder in EnLab, had complained that the initial offer was too low.
Restaurant chain owner predicts losing £5.5m every month
The Restaurant Group has announced that it expects to burn through around £5.5m every month while lockdown restrictions remain in place. The firm, which owns the Wagamama chain, has also agreed new long-term loans totalling £500m.
Rosewood considering SPAC listing
Rosewood Hotel group has filed for a special purpose acquisition company listing, with the luxury hotel group likely to raise some $400m. The Hong Kong-based firm has recruited Credit Suisse and UBS to arrange the SPAC listing in the US, with which it plans to target the consumer sector.
MANUFACTURING
Manufacturing index shows growth
The IHS Markit/CIPS Purchasing Managers’ Index for February increased to 55.1 in February from 54.1 a month earlier, with UK manufacturing activity returning to its highest levels since the start of the most recent lockdown. The index, where a reading above 50 signifies growth, shows that optimism rose to a 77-month high last month. Despite this, 58% of companies reported longer delivery times from suppliers. Rob Dobson, director at IHS Markit, commented: “The UK manufacturing sector was again hit by supply chain issues, COVID-19 restrictions, stalling exports, input shortages and rising cost pressures in February.” He added: “Look past the headline PMI and the survey reveals near stagnant production, widespread shipping and port delays and confusion following the end of the Brexit transition period.”
Bunzl rises on demand for disposable gloves and masks
Pre-tax profit at Bunzl rose by nearly 25% in 2020 as increased orders of disposable gloves, masks and hand sanitiser boosted the specialist distributor firm.
MEDIA AND ENTERTAINMENT
Zoom hails 'unprecedented' 2020
Zoom expects sales to rise more than 40% this year, reaching more than $3.7bn. The video conferencing company does not expect growth to continue at the pace it saw in 2020 but says business remains strong. The firm saw sales in Q4 2020 climb 370% year-on-year, hitting $882.5m. This, said boss Eric Yuan, “marked a strong finish to an unprecedented year.” Zoom’s sales rose 326% to $2.6bn in 2020, while profits jumped from $21.7m in 2019 to $671.5m.
Trustpilot announces intention to list in London
Copenhagen-headquartered online review website Trustpilot has announced plans for a £1bn listing in London.
Reach posts nearly 13% fall in profit
Mirror and Express owner Reach has posted a 12.8% fall in profit to £133.8m, with a 29.5% decline in print revenue and 10.8% increase in digital revenue.
BT chair to step down from board
BT chair Jan du Plessis has announced his attention to step down from the board.
ECONOMY
Consumer credit falls in January
Bank of England data released yesterday shows that consumer borrowing fell at its fastest pace since May 2020 in January. The £2.4bn decline in unsecured lending to consumers was the steepest fall since the £4.5bn recorded in May 2020. January’s total takes the year-on-year fall to 8.9%, the biggest decline since monthly records began. The figures show that British lenders approved almost 99,000 mortgages in January, down from 102,800 in December. British households paid back £2.4bn of borrowing on credit cards, personal loans and overdrafts in the first month of 2021. The total amount outstanding on credit cards and loans shrank to £199.4bn, falling below £200bn for the first time since April 2017.