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Daily News Roundup: Tuesday, 31st August 2021

Posted: 31st August 2021

BANKING

Investment bankers eye record fees

Investment bankers are on course to see record fees from mergers and acquisitions, with Refinitiv data showing that banks advising on deals involving UK companies as either the buyer or seller have earned $4bn so far this year. This far exceeds the $2.4bn made in the same period last year and is the highest year-to-date total since at least 2000. Bankers believe that the dealmaking will continue through to at least the end of the year, with Omar Faruqul of Barclays saying: “Do I think this level of activity continues for ever? No, but we also don’t see any catalyst for a slowdown”. The Times’ Ben Martin says that Britain is seen as “an attractive hunting ground”, with equities trading at a discount to American and European markets since the 2016 Brexit referendum. Charlie Jacobs of JPMorgan says that “relative to some of the valuations on some of the other international exchanges, UK corporates still look like good value.”

ATMs switched off and not replaced during pandemic, says Which?

Analysis by consumer group Which? shows that thousands of ATMs were put out of action during the first national lockdowns between March and May last year, with very few having been replaced. Data from Link shows that 8,000 ATMs have disappeared in the past 18 months – a fall of around 13%. Analysis has also found that from the first national lockdown in March 2020 until the end of restrictions in July 2021 there were 801 bank branch closures, with another 103 set to close their doors by the end of the year. Which? says the Government must do more to protect consumers who are reliant on cash and most at risk from closures, and has asked when new rules being proposed by the Financial Conduct Authority to ensure cash withdrawals can be made locally will be turned into law.

Pandemic support schemes boost challenger lending

Analysis shows that lending by challenger banks hit a record level after COVID-19 support schemes were rolled out, with lending by banks outside Barclays, HSBC, Lloyds and NatWest up 11% to £143bn last year. The report reveals a 26% increase in lending to businesses after the Government launched the Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Scheme. The research also found that lending by challenger banks has doubled over five years, from £71bn in 2015 to £143bn in 2020. 

Barclays in $3.8bn Gap card deal

Barclays is to buy a $3.8bn credit card portfolio co-branded with fashion retailer Gap. The bank is buying the portfolio from Synchrony Bank and the deal is expected to close in Q2 next year. The deal marks the latest in a string of co-branding partnerships that Barclays has formed in recent years, with it having forged deals with JetBlue, American Airlines and Wyndham hotels as it sought to fend off competition from rivals such as Citibank and JPMorgan.

Sainsbury’s could offload bank to buyout firm

Sainsbury’s is in advanced talks to sell its banking arm to US private equity firm Centerbridge Partners. Centerbridge is expected to use the purchase of Sainsbury's Bank as a platform to buy other banking operations in the UK. Under their deal, the private equity firm would acquire the business outright and use the Sainsbury's brand under a licensing agreement with the supermarket chain. One analyst suggested that the purchase price was likely to be in the region of £200m. Sainsbury's Bank was originally a joint venture with Lloyds until the supermarket group bought out the high street bank in 2013.

Jones regrets Staveley remarks

Former Barclays banker Stephen Jones has told the Mail on Sunday of his regret over comments he made about financier Amanda Staveley which saw him leave UK Finance in disgrace in June last year. Expressing his regret over the “very unflattering, and rude and sexist language” he used, he goes on to say the controversy has seen him effectively “expelled” from the top tier of banking. Revealing that he has been rejected for roles in the boardroom by three banks, he said chairs have asked him to join but someone else on the board has felt he was “too risky to take on”.

PRIVATE EQUITY

Traffic between boardrooms and private equity raises questions

Ruth Sunderland in the Mail says that while becoming the chief executive or chairman of a FTSE 100 company was once seen as the pinnacle of success in the business world, those in top positions at UK-quoted companies increasingly “present themselves as poor relations, compared with private equity barons.” Ms Sunderland says the “traffic” between boardrooms and private equity houses raises questions, pointing to possible conflicts of interest and whether CEOs can view private equity bids for UK listed companies objectively if they already have ties to that industry, “or if they know they could make a packet from it later on”.

Private equity firms ‘rapidly deploying’ dry powder

The Mail’s Angharad Carrick considers whether the private equity sector could be a good opportunity for ordinary investors amid public market volatility. She says the pandemic has seen private equity firms accumulate dry powder - the money that firms are sitting on. She adds that research suggests this has been “rapidly deployed”, with 785 deals worth a total of £74.7bn completed in the first half of 2021.

INTERNATIONAL

China's top banks post H1 profits

Industrial and Commercial Bank of China, the world's largest commercial lender by assets, saw net profit rise 9.87% in the first half of 2021 from the same period last year. Elsewhere, China's Bank of Communications Co, the country's sixth-largest lender by assets, posted a 15.1% increase in first-half net profit. Meanwhile, China Construction Bank Corp, the country's second-largest lender by assets, posted a 11.39% rise in first-half profit.

Credit Suisse hikes junior banker salaries

Credit Suisse has increased salaries for first year analysts to $100,000. Analysts within Credit Suisse’s investment banking and capital markets unit have reportedly been told the bank would pay $110,000 for third years, with this back-dated to July 1. Entry salaries have been raised across Barclays, JPMorgan, Citigroup, Deutsche Bank, Morgan Stanley, Nomura and UBS in recent weeks.

AUTOMOTIVE

Britain's car firms on brink of golden age

Investment Minister Lord Grimstone has said Britain's car industry is on the cusp of a new golden age of manufacturing, powered by billions of pounds of foreign investment into electric cars as manufacturers race to meet soaring demand. He said that as well as the manufacture of vehicles, foreign investors are interested in funding the electric car supply chain.

AVIATION

Airlines and unions in pay negotiations

Airlines Ryanair and BA are locked in pay negotiations with trade unions as they plan cost-savings, with the Mail on Sunday reporting that pilots are being asked to accept salaries almost a fifth less than their current rate in some cases. Pilots' union Balpa says Ryanair wanted pilots to work reduced hours over the winter while pilots at BA's CityFlyer subsidiary have rejected a request for a pay cut in a ballot.

FINANCIAL SERVICES

Protecting consumers is harder than it looks for financial services firms, says Ceeney

Natalie Ceeney, a former chief executive and chief ombudsman of the Financial Ombudsman Service, says that while banks are spending vast sums on compliance as the Financial Conduct Authority holds them increasingly to account for what they sell their customers, protecting against mis-selling in financial services is harder than it looks. She says that while the risk of banks mis-selling has been reduced, consumer risks are rising, pointing to how criminals have taken advantage of the pandemic by exploiting consumers’ online vulnerability. Warning that not many consumers can afford independent financial advice, Ms Ceeney says this leaves them susceptible to misinformation, with people without financial advice relying on friends, family, or social media. To address concerns over consumer protections, she says there is a need to build trust in regulators after recent scandals. Ms Ceeney also argues that regulators “need to have the tools required to operate where harm is being done”.

Amigo Loans’ future under threat despite £15m profits

Amigo Loans has warned that its future was still under threat despite reporting a tenfold increase in profits to £15m. Revenue dipped by a third to £32.5m in the first quarter of the year as the number of customers fell by 41% to 118,000. Amigo, which has been negotiating over a compensation scheme over mis-sold loans with the Financial Conduct Authority, estimates that the complaints could cost £338m to settle.

Boutique fund managers fashion a profit

David Brenchley in the Sunday Times highlights the benefits of investing in smaller, boutique fund management groups. He notes that although they might cost more than their larger counterparts they generally benefit from being more specialised so their performance can make up for those extra charges. Andrew Clare, a professor of asset management at the University of London’s Business School, found that funds run by European boutiques outperformed those managed by ”mega managers” such as BlackRock by 0.23% to 0.56% between 2007 and 2019.

Why are investment fund fees so much lower in the US?

Investors in the UK are paying twice as much as those in the US to the companies who look after their money. The average cost of a portfolio of investment funds is 0.56% in the US — less than half the UK average of 1.03%, according to Vanguard. Those who use a financial adviser pay about 1.04% in the US, which is also far lower than the UK rate of about 1.9% a year, plus a 2.4% “initial fee”, the analysis shows.

Truell plots listing of Pension SuperFund vehicle

Edi Truell’s Pension SuperFund is pursuing a flotation of a long-term assets vehicle that could, over time, plough billions of pounds into British infrastructure assets. The new vehicle is designed to provide greater liquidity for pension savers by providing a twice-yearly redemption mechanism at net asset value.

Nest opens pensions to private equity

Nest has launched a new procurement inviting fund managers to provide solutions for investing in private equity. The pension scheme is targeting an allocation of 5% of assets under management to private equity, which is estimated to be £1.5bn by the end of 2024. Over the next 20 years, the pension scheme is expecting to invest around £80bn on behalf of its members.

Sharma: City can help fund a greener future

Alok Sharma believes the financial services sector can play a vital role in raising and investing the money that will be needed to be spent on tackling climate change. Mr Sharma, president-designate of the UN Climate Change conference, said Europe’s biggest financial centre “can help mobilise the trillions needed to build a global zero emissions economy”.

LEISURE & HOSPITALITY

PureGym works out IPO to fund global expansion

The UK’s largest gym chain, PureGym, has appointed Morgan Stanley and Barclays to advise on a potential IPO to back global expansion. 

REAL ESTATE

Average BTL home added £15k in value during pandemic

Research from mortgage lender Shawbrook Bank shows that the value of the private rented sector has grown 5.8% to £1.4trn in the last year. The average buy-to-let property was worth 5.6% more in March 2021 than it was at the start of the pandemic, hitting £259,000. Wales, the North West and Scotland saw the most dramatic increases in price at 11%, 10.7% and 9.5% respectively. While London remained the most expensive UK region to buy a rental property, prices were only up 2.5%.

Banks home in on property

With Lloyds looking to become one of the UK’s largest landlords with 50,000 rental properties by 2031, the Sunday Times looks at how a growing group of large investors are aiming to shore up balance sheets by becoming landlords of residential properties. It notes that banks, pension funds and asset managers are buying thousands of new-build starter homes that never go on sale to ordinary buyers, with the properties instead packaged up and traded as assets. Some financial firms, the paper adds, are going into partnership with developers to have blocks built specifically to be rented out to create profitable investment portfolios.

Green credentials add a modest premium to property price

Research from Nationwide suggests that energy efficiency improvements are having a limited impact on house prices. The analysis shows that a green home attracted a premium of 1.7% for an owner-occupier property rated A or B compared to a D-rated home. Properties rated F or G attract a 3.5% discount compared to a similar D-rated property.

Prices surge in the suburbs

Data from Halifax shows that house prices in areas surrounding major cities have risen 10.8% since March last year, outpacing the 8.9% growth seen in city centres. Some of the shift toward the suburbs has come from people forced to work from home amid the pandemic, with some remote workers starting to look for more spacious houses with bigger gardens. The stamp duty holiday has also contributed, providing an incentive for people to buy larger homes.

ECONOMY

Lloyds: UK firms most confident in four years

British business confidence reached its highest level in more than four years in August, according to a poll by Lloyds Bank. Lloyds’ monthly business barometer rose by 6 percentage points to +36%, the highest since April 2017, while optimism in the economy rose by six percentage points following a dip in July. More than a third of the 1,200 companies surveyed by Lloyds predicted they would offer staff pay rises of at least 2% over the next 12 months and 17% anticipated wage growth of at least 3%. The poll also saw 44% of companies say they expect to increase the prices they charge, the highest proportion since December 2017. Lloyds economist Hann-Ju Ho said: “Staff shortages remain a challenge but as the economy moves back towards pre-pandemic levels we can be optimistic that the momentum for business confidence and economic optimism can be sustained in the months ahead”.

Economist in inflation warning

Raghuram Rajan, a former governor of the Reserve Bank of India and chief economist at the International Monetary Fund, has warned that inflation could surge if businesses are hit by further lockdowns, suggesting firms could increase prices as they pass costs onto consumers. Mr Rajan, who predicted the 2008 financial crisis, says central banks will watch prices closely in the coming months and could be forced to raise interest rates if inflation starts to surge. Warning that price rises could become “persistent” if the transition out of the pandemic goes on too long, he added that global economies may see continued inflation if workers used the higher prices to negotiate better pay, with this likely to push prices up even more. Mr Rajan believes central banks are likely to start winding down their money-printing programmes soon ahead of interest rate rises in 2023.

Emerging economies cannot afford ‘taper tantrum’ redux, says IMF’s Gopinath

IMF chief economist Gita Gopinath has warned that emerging markets cannot afford a repeat of disruption seen when the US Federal Reserve withdrew stimulus in 2013, driving a surge in global borrowing costs.

OTHER

Contactless payment limit increasing to £100

The spending limit for contactless payments will increase to £100 from 15 October. The decision to raise the limit from the current £45 was made by the Treasury and the Financial Conduct Authority following a public consultation and discussions with the retail and banking sectors. David Postings, chief executive of UK Finance, said: “The increase in the limit to £100 will allow people to pay for higher-value transactions like their weekly shop. The payments industry has worked hard to put in place the infrastructure to enable retailers to update their payments systems.” Contactless payments have increased dramatically as many retailers stopped accepting cash amid the pandemic, doubling in the year to May and accounting for 49% of all credit card and 65% of all debit card transactions.

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