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Daily News Roundup: Tuesday, 6th February 2024

Posted: 6th February 2024

BANKING

Sanctions blow hits Santander and Lloyds shares

Shares in Santander and Lloyds fell after a report revealed that Iran used accounts from the two UK banks to covertly move money around the world as part of a sanctions-evasion scheme. The FT obtained documents showing that Lloyds and Santander UK provided accounts to British front companies secretly owned by a sanctioned Iranian petrochemicals company based in London. Following the report, shares in Santander's Madrid-based parent company fell by as much as 3.6% and Lloyds' shares declined by 0.9%. Both banks declined to comment on specific client relationships but stressed their commitment to sanctions compliance and adherence to applicable laws and regulations. David Asher, a former US state department official who has worked on sanctions relating to Iran, said the scheme showed how Islamic Revolutionary Guard Corps-connected entities “continue to use London as a financial centre”. He added: “For UK banks to continue doing business with them is not only a major risk but is inconsistent with stated policy towards the Iranian regime.”

Lloyds close to settling Libor claim

Lloyds Banking Group is close to settling a claim brought by the former owner of the Centre Point tower, Ardeshir Naghshineh, who says he would not have taken on loans from HBOS, which Lloyds rescued in 2009, had he known that Libor was being routinely manipulated by the bank and that the rate was therefore compromised. Lloyds reached a last-minute “agreement in principle” with Naghshineh ahead of a civil hearing on Monday. The move means two senior Lloyds bankers will not have to give evidence and accusations of Bank of England involvement in Libor rigging can be put aside. It would have been the first time such allegations against the BoE could have been aired in the High Court.

HSBC and Halifax raise mortgage costs

HSBC and Halifax have both increased the cost of mortgages, despite expectations of an interest rate cut by the Bank of England. HSBC is raising rates for existing customers switching to new deals or borrowing more, while Halifax has increased the cost of certain re-mortgage deals. However, both lenders are cutting rates for first-time buyers. Mortgage experts note that those remortgaging have little choice but to accept the rate increases, while first-time buyers can wait for better deals. The recent increase in SWAP rates and strong US jobs figures have spooked the mortgage market, potentially reversing the recent trend of decreasing mortgage rates.

PRIVATE EQUITY

Hgcapital reports strong asset value growth

Private equity investment trust Hgcapital has defied concerns about exiting private equity investments by successfully making full and partial exits from software firms Transporeon and Commify, as well as secondary sales from Hg Genesis 8 and Hg Saturn 3 funds. These exits resulted in an average uplift of 25%. Hgcapital's realisation activity in 2023 has set it apart from other private equity firms struggling to generate liquidity from their portfolios. Hgcapital reported a 10.7% increase in net asset value per share and a 26.2% increase in share price in its preliminary results for 2023.

Private equity owners pile on debt to pay themselves dividends

Private equity firms in the US are taking advantage of lower borrowing costs and loading debt on to their portfolio companies so they have cash to pay dividends to themselves and their investors.

INTERNATIONAL

Citi sees potential in US bank stocks

Investors should be aggressive in buying US banking stocks, as a recent upheaval in the industry has created "attractive entry points," Citigroup analysts said. Commercial real estate (CRE)-related concerns highlighted by New York Community Bancorp and Japan's Aozora Bank do not shake the brokerage's confidence in the broader group of banking stocks. While profits have been hit in recent months as lenders build up capital buffers against potential loan losses tied to CRE, "the bulk of reserve build is behind," Citi said.

UniCredit to pay out 2023 profit in full

UniCredit reported net income of €2.8bn in the October-December period, surpassing expectations. Revenues edged up from the previous quarter and rose 4.6% year-on-year. Provisions against loan losses in Q4 were less than half of what analysts had forecast. The lender said on Monday it would pay out €8.6bn in share buybacks and dividends out of its 2023 earnings, which is 100% of its underlying profit.

Nordea's Q4 operating profit lags forecast

The Nordic region's biggest bank, Nordea, has reported lower-than-expected fourth-quarter profits, falling to €1.42bn from €1.61bn the previous year. The Finnish lender and its Nordic peers, such as SEB, Swedbank, and Danske Bank, have been enjoying high profits due to soaring interest rates, which are expected to decline this year. Shares fell more than 4% on Monday.

MUFG's Q3 profit triples

Mitsubishi UFJ Financial Group (MUFG), Japan's largest lender, reported a tripled net profit of 370.64bn yen ($2.50bn) for the third quarter of October-December. This significant increase in profit was partly due to an accounting loss related to the sale of its U.S. unit MUFG Union Bank a year earlier. MUFG maintained its annual profit forecast at 1.3trn yen, which would be a record for the bank.

AVIATION

Boeing facing more 737 Max delays

Boeing will have to delay deliveries of more of its bestselling 737 Max planes after supplier Spirit Aerosystems discovered two holes drilled incorrectly.

FINANCIAL SERVICES

US private fund industry challenges SEC rules on fee disclosures

The US Securities and Exchange Commission (SEC) is facing a legal challenge from the private fund industry over agency rules requiring hedge funds and private equity firms to disclose quarterly fees and expenses to investors. The SEC, under Chair Gary Gensler, has been tightening its grip on private funds, aiming to bring increased transparency to the industry. The rules, adopted in August, would also prevent firms from allowing certain investors to cash out more easily than others. The industry groups argue that the rules would fundamentally change the way private funds are regulated in America and that the SEC exceeded its authority in adopting them. The case is set to be heard by a three-judge panel of the US Fifth Circuit Court of Appeals in New Orleans.

CMC Markets to cut 200 jobs in cost-cutting effort

Lord Cruddas's CMC Markets is set to cut 200 jobs, about 17% of its headcount, in an effort to reduce costs. The company plans to boost efficiency by merging support roles, simplifying chains of command, and automating processes. CMC is among the businesses in the financial services sector that have announced job cuts due to higher interest rates and inflationary pressures. The London-listed company expects savings of £21m by 2025, with this year's income predicted to fall between £290m and £310m.

HEALTHCARE

Blackstone mulls bid for luxury skincare company L'Occitane

Blackstone is considering a bid for skincare company L'Occitane International SA, according to sources. The private equity giant is conducting preliminary due diligence and may team up with L'Occitane's chairman Reinold Geiger for a potential buyout.

MEDIA & ENTERTAINMENT

Goldman Sachs bullish on AI prospects, boosts Nvidia

Nvidia's shares are expected to reach a new peak as Goldman Sachs raises its price target for the chipmaker. The stock rose 3.4% in premarket trading, potentially adding $55bn to the company's market capitalisation. Despite the stock's 34% rise this year, Goldman Sachs analyst Toshiya Hari believes there is still room for growth. The bank raised its price target for Nvidia to $800, indicating a 21% upside from current levels.

Blackstone bids for data centre construction giant Winthrop

Private equity giant Blackstone is in talks to buy a large stake in Ireland-based data centre construction group, Winthrop Technologies, in a deal worth around £700m. The deal highlights the growing demand for computing power and the importance of data centres in the global economy.

Snap to lay off 10% of its staff

Social media giant Snap, which operates Snapchat, has announced plans to cut about 500 staff, or roughly 10% of its workforce. Snap is due to report its fourth-quarter results today - having reported a net loss of $368m (£294m) in the previous quarter in October 2023.

REAL ESTATE

Planning rules cost UK economy £130bn per year

Rishi Sunak has been urged to allow denser development in built-up areas to help people get on the housing ladder. A report by the Adam Smith Institute reveals that planning rules cost the UK economy more than £130bn per year. The report estimates that restrictions on height, width, and density have resulted in a loss of up to 6.1% of GDP, equivalent to £138.5bn. Sir Brandon Lewis, the former housing minister, urged the Conservative Party to implement the reforms to boost economic growth.

Activist fund Elliott targets Japan’s biggest property group

Elliott Management is pressuring Mitsui Fudosan, Japan's largest property group, to launch a $6.8bn share buyback as pressure grows on Japanese companies to improve governance.

ECONOMY

UK unemployment rate revised down to 3.9% in November

The Office for National Statistics (ONS) has revised the UK unemployment rate down to 3.9% for the three months to November, lower than the previous estimate of 4.2%. The ONS also revised the inactivity rate up to 21.9% for the same period, from 20.8%. The inactivity rate has been driven higher by long-term sickness and waiting lists for treatment, with 2.8m people now suffering from chronic health conditions compared to a first estimate of 2.6m. The revisions were made due to an overhaul of the ONS labour force survey, which had low responses and therefore unreliable data. The changes are largely due to changes in the population structure, with increases in the number of economically inactive young people and women, and a decline in female employment levels. The ONS is working on making the figures more accurate and will soon launch a revamped labour force survey.

UK services sector growth jumps

The UK's services sector experienced a solid increase in business activity last month, according to a survey by S&P Global, with the services purchasing managers' index (PMI) rising to 54.3 in January. This indicates growth in the sector for the past three months. Improved economic conditions and increased sentiment at the start of the year contributed to this strong performance. Job creation also saw a significant rise, with the fastest rate since July. However, wage growth constraints and cost-of-living pressures impacted hiring. Despite this, total new work and export sales increased, supported by stronger demand from Asia and the US. Business optimism reached its highest level since May, reflecting expectations of better economic conditions. This positive services data contrasts with the weaker manufacturing PMI, which was affected by the Red Sea shipping crisis.

OTHER

OECD says UK inflation will be lower than thought

The Organisation for Economic Co-operation and Development (OECD) has revised down its predictions for UK inflation, but the country is still expected to have the highest inflation among G7 economies in 2024 and 2025. The UK's inflation is forecasted to average 2.8% in 2024 and 2.4% in 2025, surpassing other G7 countries. The OECD also highlighted global inflation risks due to geopolitical tensions and disruption to Red Sea shipping. It suggested that central banks could start lowering interest rates in 2024, but cautioned about the need for prudent monetary policy. The UK's growth forecasts are gloomy, with the country expected to have one of the weakest expansions among G7 countries. Germany is predicted to have the weakest expansion, followed by France, the UK, and Italy.

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