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Daily News Roundup: Tuesday, 3rd May 2022

Posted: 3rd May 2022

BANKING

NatWest reports 41% rise in profits

NatWest has reported a 41% rise in pre-tax operating profits for the first quarter, to £1.25bn. This compared to £885m a year earlier and drastically exceeds the forecasted £755m figure. For the three months to the end of March, revenues rose by 17% at £3bn, driven by a 10% increase in net interest income to more than £2bn. The bank’s net interest margin rose from 2.32% a year earlier to 2.46%. NatWest also released £36m of the funds it had originally ringfenced for potential defaults on loans during the pandemic. NatWest CEO Alison Rose said: “Despite the challenging environment, I am pleased with our performance as we continue to execute well against our strategy, driving sustainable growth and returns.” However, she also highlighted that “many” of the bank’s customers are coming under pressure from the cost of living crisis, which will be exacerbated by the “next round of energy costs” later in the year, adding that the group was “focused on providing practical help and support”. The bank said it had referred 2,100 people to Citizens Advice over the past year.

Challenger banks warned over fraud risks

The Daily Telegraph’s Simon Foy looks at concerns that criminals are using challenger banks, with traditional lenders becoming “increasingly frustrated” as some digital rivals cut corners around money laundering regulations so customers can quickly set up accounts. He highlights a case where Barclays flagged a fraudster attempting to use open banking transfers to target unsuspecting customers, having spotted that some customers had handed over millions of pounds to a single, suspicious Monzo account in a matter of weeks. Mr Foy notes that the Financial Conduct Authority (FCA) has been looking into the issue and, following a review of six top challenger banks, warned that they were failing to adequately tackle financial crime. He says the “slapdown” by the City watchdog is “the strongest indication yet that it could take wider action if controls are not improved across the board.” Naomi Miles, a senior lawyer at BCLP, says: “Firms should consider themselves put on notice.” Alison McHaffie, a partner at law firm CMS, suggested that the review offers challenger banks the opportunity to show the financial services industry how they can tackle fraud “in a nimble and faster paced environment.” “Those that don’t heed the warnings will not only leave themselves exposed to financial crime but will find themselves at the sharp end of the FCA powers,” she adds.

IA issues warning over Barclays' gender diversity

The Investment Association has voiced concern about gender diversity at the top of Barclays. The investor group has issued a red-top alert against the lender, flagging that it has too few women in executive roles. The association has a policy of issuing a red-top on FTSE 100 and FTSE 250 firms where women account for less than 33% of the board or 28% of the executive committee. It has reportedly warned investors that Barclays has fallen short on the latter measure, with it noted that with the appointment of Anna Cross as finance chief last month, the proportion of women on Barclays’ executive committee now stands at 27%. Barclays said: "We recognise there is more work to be done in this area and we are focusing on increasing the number of female MDs and directors." The Times suggests that the Investment Association’s alert could prompt a shareholder revolt at Barclays' annual meeting tomorrow, adding to pressure on the lender after advisory service Glass Lewis recommended that shareholders vote against Barclays' remuneration report.

Ping An calls for HSBC to split up

HSBC’s largest investor, Chinese insurer Ping An, has called on the bank to split its Asian and western operations. Ping An suggested that an independent Asia business listed in Hong Kong would have higher profitability, lower capital requirements and greater autonomy to make decisions. Ping An is said to be particularly unhappy that pressure from British regulators, 6,000 miles away from Hong Kong, led to the cancellation of the bank’s dividend in 2020 for the first time in 75 years. In response, HSBC said it was “committed to maximising value" for all shareholders, adding: “We believe we've got the right strategy and are focused on executing it."

INTERNATIONAL

German authorities raid Deutsche Bank in money laundering investigation

German prosecutors have revealed that Deutsche Bank’s headquarters in Frankfurt have been raided on suspicion that unnamed bank employees may have violated anti-money laundering laws.  

AUTOMOTIVE

Musk sells $8.5bn of Tesla shares

Tesla CEO Elon Musk has sold about 5.6% of his stake in the carmaker, worth $8.5bn. The sell-off is believed to be part of Mr Musk’s plan to finance his acquisition of Twitter. Although the social media giant agreed to a $44bn takeover last week, questions have been raised about how he will finance the deal, which is set to be one of the world’s largest leveraged buyouts. Musk has so far committed to providing equity financing of $21bn, while he has also secured a margin loan against Tesla shares which will provide an additional $12.5bn of debt.

CONSTRUCTION

Fears over construction sector amid price increases

Despite strong demand in the construction sector, concerns have been raised of a potential downturn, as suppliers pass operational cost increases onto customers. This comes as builders’ merchant Travis Perkins announced revenues had risen by almost 18% for the first quarter of the year, although pricing is “likely to form a higher proportion of sales growth across the year than previously thought”. The group indicated that year-on-year cost inflation was at 12%. Meanwhile, roofing and insulation group SIG reported a 25% like-for-like increase in first-quarter revenues at £625m, while indicating a 19% inflation rate on its goods. Cladding company Kingspan reported a 31% increase on first-quarter sales on an underlying basis. However, the figure stood at 47% when accounting for inflation.

FINANCIAL SERVICES

MP calls for fraud fighting agencies to be merged

Mel Stride, chairman of the Treasury Select Committee, believes Britain's fraud fighting agencies should be merged, creating a single, expanded agency tasked with tackling economic crime. Currently, the Serious Fraud Office works alongside the National Crime Agency, HMRC, the City of London Police and the Financial Conduct Authority on the National Economic Crime Centre, with these variously accountable to the Home Office and the Treasury. Mr Stride has suggested that the Government should consider creating a single agency under the supervision of a single government department, criticising "fragmented" efforts to tackle white-collar crime. He has also warned that a £400m funding package for tackling economic crime up to 2025 is not enough, saying the figures “seem relatively light given the extent of the problem.” The Government has said that a "multi-agency approach is the right way to fight economic crime and fraud" because the crime is so diverse.

FSCS warns of firms targeting LCF investors

The Financial Services Compensation Scheme (FSCS) has named two companies suspected of trying to scam London, Capital & Finance (LCF) investors. Warning that LCF bondholders were being approached by scammers, it said: “Fraudsters using the company names LC Holdings and Capital Finance are claiming to be able to get compensation for the full amount of your LCF investment. Both are scams, and there may well be others.” The FCSC warned investors to be “very wary” of any calls, post or emails claiming to be from LCF or someone offering to help them secure compensation. LCF collapsed in 2019 owing more than £230m, putting the funds of some 14,000 bondholders at risk.

Global regulators call for external checks on bank climate data

The Financial Stability Board (FSB) has said that regulators could force banks and other financial firms to hire external auditors to check on the accuracy of their climate data. The FSB said the lack of sufficiently consistent, comparable, granular and reliable climate data reported by financial institutions is one of the main challenges for regulating climate-related reporting by financial firms. The FSB added that there is also a need to consider whether a system-wide "macroprudential" capital buffer is needed for banks to cover climate risks that could undermine the wider financial system.

Allianz toughens oil and gas policy to help meet climate goal

Allianz has said it plans to take a tougher line on insuring the oil and gas industry as part of efforts to align its underwriting policies with the world's climate goal. As of January 2025, Allianz will only insure oil and gas companies which were on a science-based pathway to net-zero emissions by 2050, including major oil companies. Starting at the same time, Allianz also said it will provide no insurance, facultative reinsurance, or reinsurance for a single risk or defined package of risks, or funding to companies which get more than 10% of their revenue from oil sands, after previously setting the threshold at 20%.

City of London’s top official calls for closer UK-EU co-operation

Catherine McGuinness, the head of the City of London Corporation’s policy and resources committee, has called on the UK and EU to sign a regulatory co-operation agreement on financial services.

MANUFACTURING

Small manufacturers want a minister

Engineering company bosses have launched a parliamentary petition calling for a dedicated “minister for manufacturing,” having expressed concern that the current set-up is geared more toward large companies. A petition has been submitted on behalf of 24 companies and organisations behind the Support UK Manufacturing initiative. Company director Andrea Wilson said: “We are trying to fix the Government’s one-size fits all approach to engineering and manufacturing support.” Ms Wilson said that while the industry employs 2.5m people, generates £183bn in revenue and is responsible for 50% of UK exports each year, it is not receiving the tailored support required. A Department of Business, Energy and Industrial Strategy spokesman said the minister for industry represented “manufacturers of all sizes” and that he had met “many” SME manufacturers and groups representing them in recent weeks, including Make UK, the CBI and the Manufacturing Technologies Association.

REAL ESTATE

House price growth set to slow

Property prices have risen by 12.1% in the past year but the rate of increase is set to slow, according to Nationwide. The mortgage lender said that the increase in April was lower than in March, and the trend was likely to continue as budgets were squeezed. The likelihood of further interest rate rises could also affect the market. First-time buyers will still be concerned that annual price rises have been in double digits for months. In all but one month in the past year, annual house price rises have been higher than 10%, Nationwide said. Across the UK, it said the average house price in April was £267,620.

PM plans to bring back Right to Buy

Boris Johnson wants to give people the right to buy the homes they rent from housing associations, with the Prime Minister reportedly ordering officials to develop the plans after becoming convinced the move will help the so-called generation rent. The plan would give the 2.5m households in England who rent properties from housing associations the power to purchase their homes at a discounted price. Another proposal being developed is for the taxpayer money paid out in housing benefit to be used to help recipients secure mortgages.

Developer to lose £187m after selling Thames City stake

Chinese developer R&F Properties has sold its 50% stake in the Thames City development for a huge loss following disappointing demand from residents. Thames City comprises 12 buildings including three skyscrapers, and is a central part of the flagship Nine Elms regeneration of Vauxhall and Battersea. R&F has sold its stake in the project to its partner, fellow Chinese developer CC Land, for £270m including a loan. The two companies paid £470m for the site in 2017, with R&F now expected to record a loss of around £187m from the disposal. This comes after fewer than 90 flats at the development were sold in 2020, with more than half sold to related parties of the developers.

Office return boosts demand for city flats

Analysis by Rightmove shows that demand for flats in UK cities and commuter areas is increasing as people return to the office and more settled working patterns. In January 2021, terraced houses were the most popular property but flats are now the properties in highest demand. Tim Bannister, a property data expert at Rightmove, said: “In the initial stages of the pandemic, houses stole the show, as people looked for as much room as possible. As restrictions have eased, being closer to city amenities has become more of a priority.”

ECONOMY

Fears growing over financial pressures

Fears are rising over the financial pressures facing British companies and individuals. The latest Lloyds Bank Commercial Banking barometer shows that business confidence in London fell by 20 points during April to 40%. Meanwhile, banks are urging customers to seek help with personal debt, with NatWest referring more than 2,000 people to Citizens Advice over the issue. The bank's CEO Alison Rose warned: "The world has changed considerably during the last three months.” Elsewhere, ING Economics predicts continued inflation, "which will add to upward pressure on consumer prices.” In addition, Capital Economics has suggested that the bank rate will increase to a peak of 3.00% next year, rather than the peak of 2.50% currently priced into the markets. Capital also predicts that the pound could fall from $1.26 to $1.22 later this year. 

Posen: Bank ‘duty bound’ to trigger recession

Adam Posen, a former Bank of England official, says policymakers are “duty bound” to push the UK into recession in a bid to tackle soaring inflation. With the Bank’s Monetary Policy Committee expected to increase interest rates by 0.25% to 1% at Thursday’s meeting, Mr Posen said: “The central bank has no choice but to cause a recession when a broad range of prices are rising at such a strong pace.” He also warned that the UK has a “greater risk of inflation persisting without further action” than some nations as it has “Brexit, which is going to restrict the supply of labour over the longer term, and trade restrictions that will keep prices higher than they would otherwise be.”

OTHER

Value of global M&A slips in Q1

The value of global M&A activity declined in Q1, according to analysis from GlobalData. The total value of transactions has fallen by more than 20% when compared to Q4 2021, hitting $725bn in the opening three months of 2022. Some of the dip comes as the market touches more normal levels, having seen a surge in value growth last year. GlobalData analyst Snigdha Parida said: “The overall fall in M&A activity came despite a number of large deals of more than $10bn,” noting that these mostly came from the technology, media, and telecom sector. While Ms Parida believes tech giants “will start engaging in billion-dollar M&As to position themselves in the metaverse,” Russia’s invasion of Ukraine, geopolitical tensions and supply chain disruptions mean corporates are “more cautious around deals”, driving the M&A market into a “more subdued phase”. She adds that the “coming quarters of 2022 will continue to face significant challenges.”

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