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Daily News Roundup: Tuesday, 3rd October 2023

Posted: 3rd October 2023

BANKING

Archer-Daniels-Midland fined £6.5m for money laundering failings

The British broking division of Archer-Daniels-Midland (ADM) has been fined £6.5m by the Financial Conduct Authority (FCA) for "serious" money laundering failings. The FCA had warned ADM Investor Services International about its lax financial controls in 2014, but an inspection in 2016 found significant shortcomings. These included generating a significant portion of its gross profit from high-risk clients and having customers based in jurisdictions notorious for money-laundering risks. The ADM unit handles over 180m derivatives contracts annually and 32% of its gross profits between 2014 and 2016 came from high-risk clients, and it had 41 politically exposed persons as clients. “ADM Investor Services' failures put it at risk of being used to facilitate financial crime,” Therese Chambers , the FCA's joint executive director of enforcement and market oversight, said in the statement. “These failings continued even after the firm had received clear warnings on the need to improve its systems.”

Government to change law to prevent de-banking for "wrong political views"

The UK Government has pledged to change the law to prevent people from being de-banked for having "wrong political views." Chancellor Jeremy Hunt announced the plan during the Conservative party conference, stating that nobody should have their bank account closed due to someone else deciding they're not politically correct. The law already prohibits financial institutions from discriminating against customers based on lawful freedom of expression. The changes include extending the notice period for banks to close accounts from two months to 90 days and requiring banks to provide clear explanations for account closures. The Financial Conduct Authority is also reviewing the treatment of politically exposed persons by banking providers.

Quarter of young homeowners opt for 35-year mortgages

A quarter of young homeowners, aged 29 and under, have opted for repayment terms of at least 35 years to make their monthly mortgage payments more affordable, according to Experian. This is a significant increase from the historical average of 10%. First-time buyers and movers are choosing longer mortgage terms, with some lenders offering deals of up to 40 years, to bridge the gap between living costs and high loan prices. The trade body UK Finance reported that a record 19% of loans taken out by first-time buyers in March had terms of 35 years or longer. This is the highest proportion of 35-year mortgages since records began in 2005.

Banks face fresh wave of PPI claims

The Telegraph reports on legal action brought last week by Harcus Parker alleging that banks charged customers secret commissions worth around 80% on PPI sales. The law firm filed an £18bn challenge on behalf of 6m bank and credit card customers who had a PPI claim rejected or were only paid back a proportion of commission above a 50% premium. Despite the Financial Conduct Authority instructing financial institutions to inform clients about claiming back commission over 50% in 2017, many customers were not contacted and refunds were not paid out, Harcus Parker claims.

PRIVATE EQUITY

Carlyle shifts focus to healthcare and technology

Private equity firm Carlyle Group is dismantling its U.S. consumer, media, and retail investing team as it shifts focus to healthcare and technology. Four dealmakers focused on the sectors the company is pulling back from were asked to leave in the past week. Carlyle Group hired Harvey Schwartz, a former Goldman Sachs executive, as its CEO to cut back on expenses and improve the company's stock price. The reorganisation will result in job changes or eliminations for about a dozen staff. Carlyle Group will continue to pursue investments in Europe and Asia, while also focusing on government services, industrials, and financial services.

INTERNATIONAL

Deutsche Bank gets regulatory monitor after Postbank complaints

German regulator BaFin is appointing a special monitor to Deutsche Bank to oversee the German lender's handling of consumer service problems at its Postbank unit. BaFin has deemed the disruptions experienced in Postbank's online offerings, difficulty reaching customer service, and long processing times as "unacceptable". Deutsche Bank stated that they are making progress in improving processing times at Postbank as part of the action plan agreed with BaFin.

Dimon: AI will enable a 3.5-day workweek

Jamie Dimon, CEO of JPMorgan, spoke with Bloomberg on Monday about the use of artificial intelligence (AI) in his bank and its potential impact on the work week. Dimon stated that AI technology is already integral to JPMorgan, with thousands of employees using it in various processes. He believes that AI will eventually replace some human jobs, but hopes to "redeploy" those employees elsewhere in the company. Dimon also discussed the possibility of a shorter work week, suggesting that it could be reduced to 3.5 days in the future.

BBVA announces share buyback program

Spanish bank BBVA has announced a €1bn share buyback program, which will see it buy up to €564.6m outstanding shares on the stock market by September 2024. The buyback program was announced in July following BBVA's higher-than-expected net profit of €2.03bn in the second quarter.

Laurentian Bank names new CEO

Canada's Laurentian Bank has named Eric Provost as its new CEO, replacing Rania Llewellyn. Provost, who has been with the bank for over a decade, will also take on an expanded position as group head of personal and commercial banking.

HEALTHCARE

Cheap malaria vaccine developed approved for global rollout

The World Health Organisation (WHO) has approved a low-cost, readily available vaccine for malaria that promises to help ease one of the greatest disease burdens on the developing world. The R21 vaccine, developed by the University of Oxford, the Serum Institute of India and drug maker Novavax, could help reduce the 500,000 malaria-associated deaths that occur each year.

MANUFACTURING

UK manufacturing decline continues for seventh month

The UK manufacturing sector continued to decline for the seventh consecutive month in September, with production falling. The Chartered Institute of Procurement & Supply (CIPS) reported a purchasing managers index (PMI) of 44.3, indicating contraction. Weak conditions at home and abroad, ongoing market uncertainty, and the cost-of-living crisis have impacted demand. New export business also contracted for the 20th successive month, although at a slower rate. Input costs continued to fall, but selling prices increased for the first time in four months. The manufacturing sector in major economies has been contracting due to slow growth in China and a shift in consumer spending towards services. "September saw the manufacturing sector still mired in contraction territory, as weak conditions at home and abroad hit new order intakes and led to a further scaling back of production volumes," said Rob Dobson, director at S&P Global Market Intelligence.

MEDIA & ENTERTAINMENT

TalkTalk sells business division as it prepares three-way split

TalkTalk has sold its business division, TalkTalk Business Direct, to a special purpose vehicle controlled by its main shareholders for £95m. The deal comes amid a scramble to raise cash to pay down the group’s £1.1bn debt pile. TalkTalk is also hoping to raise cash by selling stakes its consumer and wholesale operations or disposing of them altogether.

REAL ESTATE

House prices held steady last month

The average price of a house in the UK was unchanged last month, according to Nationwide, despite expectations of a 0.4% fall. The average price of a house in the UK is now £257,808. However, house prices are 5.3% lower than they were last year, the same annual figure that was recorded in August. Economists had predicted that the year-on-year rate of decline would worsen to 5.7%. “The downturn in house prices probably has only a few months left to run,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. The market is “close to bottoming out,” he said. The price slump eased in London with values down 3.8% in the third quarter compared to a year ago, an improvement from the 4.3% fall the previous quarter. The South West was the worst-performing region with prices sliding 6.3% in the third quarter, while Northern Ireland was the strongest.

RETAIL

Lloyds Pharmacy owner eyes the Body Shop

The owner of the Lloyds Pharmacy chain, Aurelius Group, is among the suitors interested in acquiring The Body Shop, which has been put up for sale by its Brazilian owner Natura. Other potential buyers include private equity firm Epiris and Elliott Advisors. The Body Shop has seen a decline in sales in recent quarters, with a 12% drop in Q2 2023 following a 9.4% drop in Q1 2023. Natura, which purchased The Body Shop for £880m in 2017, has not guaranteed a sale.

Sharon White to step down as John Lewis chair

Dame Sharon White will step down as chair of John Lewis and Waitrose in 2025, when her five-year term ends. The announcement comes just weeks after the retailer warned it would take a further two years to complete a turnaround plan she began. The partnership, which recently fell to another loss and scrapped its annual bonus, is understood to be exploring options to raise capital.

ECONOMY

BoE rate-setter says rates may remain permanently higher

Catherine Mann reiterated her position that the Bank of England’s interest rate hikes have only just started to reap the sort of restrictions on inflation that are needed and that a tighter monetary policy stance is required to keep a lid on rising prices. Speaking on Monday at an event hosted by Redburn Atlantic and Rothschild, the BoE rate-setter added that policy makers are facing a “world where inflation shocks are likely to be more frequent” with stronger price growth meaning interest rates will need to be permanently higher.

OTHER

IMF: Climate policies fiscally unsustainable

The International Monetary Fund (IMF) has warned spending on climate policies without generating new revenue streams could send debt to unsustainable levels. In its Fiscal Monitor, the IMF said government spending to tackle climate change could see debt levels increase by around 45 to 50% of GDP by 2050. “We consider this to be fiscally unsustainable,” Ruud de Mooij, assistant director in the IMF’s Fiscal Affairs Department said. Although government intervention was needed to bring down emissions, the IMF suggested governments implement more revenue based strategies, like carbon pricing.

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