BANKING
BoE in credit stress and financial resilience warning
The Bank of England has launched a crackdown on credit and buy-to-let mortgages, warning banks that it intends to put risky areas under greater scrutiny given rising interest rates and a surge in inflation. Lending to landlords and small businesses will see more oversight, as will borrowing on credit cards. In a letter to bank chief executives, Bank official David Bailey ordered lenders to be “ready for a prolonged period of credit stress.” He warned: “The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply chain disruptions is expected to pose challenges to firms’ credit portfolios.” Mr Bailey, executive director at the Prudential Regulation Authority, said that while lenders had already become more careful about their lending, these measures were “untested under the current combination of risk factors.” He wrote: “It is important that firms ensure their credit risk management practices are robust, portfolios are closely monitored, customer support and collections arrangements are appropriately scaled, and expected credit loss provisions are recognised in a timely manner.” In the letter to bank executives, the Bank of England's regulatory arm set out its priorities for the New Year. A key issue for regulators was financial resilience, in particular “deficiencies in banks' risk management and governance frameworks.”
Bonus cap rethink realigns Britain with global norms – Griffith
City Minister Andrew Griffith says that scrapping the bankers’ bonus cap would realign Britain with global financial norms, telling MPs that the UK has “departed from global norms,” and that the “global competitive set” do not have a cap on bonuses. Mr Griffith, who told the Treasury Committee that London has been hit harder by the cap than the rest of Europe because more international banks have bases in the capital, insisted that there was little risk that scrapping the cap would lead to big bonuses on top of already elevated pay. Facing questions from MPs over proposed reforms for financial services, Mr Griffith also reassured the committee that planned changes to ring-fencing do not “dismantle or dismember” the objectives of the original regime. He said the Government had taken a “cautious approach” and insisted that there would be “no race to the bottom and no bonfire of controls.” Asked why ministers proposed increasing the threshold at which ring-fencing applied from £25bn to £35bn, Mr Griffith said it was to avoid the “equivalent of fiscal drag for banks”, noting that asset values have continued to rise.
Big banks failing to pass on rate hikes
While the Bank of England base rate has risen from 0.1% to 3.5% since December 2021, many big banks have not passed on the bulk of the increases to savers. A year ago, big banks typically paid 0.01% on their popular easy-access accounts, while the best rate available elsewhere was 0.71% - a difference of 0.7 percentage points. Currently, the best deal from big banks is 0.65%, against 2.81% from other providers. This means the gap has trebled to 2.16 points.
Revolut fails to file its accounts on time
Challenger bank Revolut has failed to file its accounts on time. It missed its September deadline to file its figures for 2021 and was given an extension to the end of 2022 but has also missed that deadline. It is understood the delay is connected to a dispute between Revolut’s auditor and the Financial Reporting Council.
INTERNATIONAL
Goldman Sachs to cut 3,200 jobs
Goldman Sachs is set to axe up to 3,200 jobs as part of its biggest restructuring efforts since the financial crisis. Investment bankers could also see a 40% reduction in annual bonuses as part of the bank’s cost-cutting exercise. The company recruited extensively during the pandemic years and in 2020 paused its routine firing of the least productive employees. CEO David Solomon warned in December that the bank faced challenges, saying that there are “a variety of factors impacting the business landscape, including tightening monetary conditions that are slowing down economic activity.”
FINANCIAL SERVICES
Crypto regulations unlikely to be ready in 2023
The Treasury Committee has been told that regulations for digital currencies are unlikely to be ready in 2023. City Minister Andrew Griffith told MPs: “I think we should all be humble about our ability to predict future technologies but it would be wrong for the UK not to be forward leading to seek to make the most of the opportunity,” before noting that “we’re probably not going to be legislating in 2023.” The minister was quizzed on the risks facing the crypto industry and the potential for the UK to lead on crypto regulation. He said the Government’s strategy will be set out in two upcoming public consultations: one on the general regulatory approach to crypto assets and one on Central Bank Digital Currencies. He went on to voice concern that regulation could create a “halo effect” around crypto assets that appear to be safer than they actually are, saying: “That is a big concern, and it is one reason why we are taking our time and trying to get the balance right.”
FCA fines Guaranty Trust Bank £7.6m
Guaranty Trust Bank has been fined £7,671,800 over “serious weaknesses” in its systems and controls designed to prevent money laundering. The Financial Conduct Authority (FCA) said that although the weaknesses “were repeatedly highlighted to GT Bank by internal and external sources, including the FCA,” the lender failed to take any action to fix the problems. The City watchdog said the bank’s conduct was “particularly egregious” as it had previously been warned over its anti-money laundering controls, with the FCA fining it £525,000 in 2013 for similar serious failings. Mark Steward, the FCA’s enforcement director, said GT Bank “should have acted quickly to put in place adequate AML controls following its fine in 2013.” GT Bank, a wholly owned unit of listed Nigerian financial services firm Guaranty Trust Bank Holding Company, has not disputed the FCA’s findings and agreed to settle the case, meaning it qualified for a 30% penalty discount. Without this reduction, the fine would have been £10,959,700.
Institutional investors set to scoop up digital assets
Research by Grayscale Investments suggests that institutional investors are set to replace retail investors as the major holders of digital assets in 2023. The analysis shows that more than 7 out of 10 of professional investors believe institutions will hold 60% of digital assets within seven years. Currently, institutions hold around 3% of digital assets and retail investors hold 97%. The poll of professional investors who control $182.5bn assets under management saw just 4% say that institutions will never replace retail investors as the main holders of digital assets.
REAL ESTATE
Higher house prices boosts death tax take
Property wealth makes up a huge proportion of the inheritance tax take in the most expensive places to live in the UK. Homes are the source of half of IHT paid on the average estate by families in London and 39% in the South East, according to data obtained from HMRC by financial services firm Just Group. Data from Nationwide shows that property prices have risen 22% over the past three years, pulling far more homes in expensive areas into the inheritance tax net. Laura Suter, head of personal finance at AJ Bell, comments: “Lots of people who might not consider themselves to be that wealthy, but who own a property that’s risen significantly in value, will find some of their estate subject to 40% tax on their death.” She adds: “It means that the tax has become a huge cash cow for the Government.” It is noted that IHT is forecast to earn the Treasury nearly £7bn a year over the next six tax years.
RETAIL
Amazon warehouse closures put 1,200 jobs at risk
Amazon plans to shut three warehouses in the UK, putting 1,200 jobs at risk. The online retail giant has launched consultations over the closure of sites in Hemel Hempstead, Doncaster and Gourock, in the west of Scotland. The firm said staff in the warehouses which are due to close would be offered the chance to move to other Amazon locations. While Amazon last week said it planned to cut more than 18,000 jobs globally in an attempt to reduce costs, a spokesperson said the decision to close the UK warehouses was made after a review of operations in the country and was "completely unrelated" to the wider cuts. The firm has also revealed plans for two new major fulfilment centres in Peddimore, West Midlands, and Stockton-on-Tees, County Durham. It said these facilities will create 2,500 jobs over the next three years.
ECONOMY
World Bank in global recession warning
The World Bank has warned that the global economy is "perilously close to falling into recession," pointing to higher inflation and interest rates among the factors that could hit growth. It expects the world economy to grow by 1.7% this year, with this down from the 3% it predicted in June. Growth of 1.7% would be the lowest since 1991, with the exceptions of the recessions of 2009 and 2020, which were driven by the financial crisis and the pandemic, respectively. The report says the downturn will be driven by a “synchronous monetary policy tightening” to contain inflation. “Although this tightening has been necessary for price stability, it has contributed to a significant worsening of global financial conditions, which is exerting a substantial drag on activity,” the World Bank said. The report said the US, the Eurozone and China were "all undergoing a period of pronounced weakness." It adds that after a post-pandemic surge of 5.3% in 2021, growth in the world's richest economies is likely to slow from 2.5% in 2022 to 0.5% this year.
OTHER
Central bank bosses play down climate change role
Bank of England governor Andrew Bailey and Jerome Powell, chief of the US Federal Reserve, have said central banks should only have a limited role in tackling climate change. Speaking at a summit hosted by Sweden’s central bank, Mr Powell acknowledged the Fed has “narrow, but important responsibilities” in managing risks to the US financial system from climate change, but noted: “We are not, and will not be, a ‘climate policymaker’.” He told the meeting that “without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals.” Meanwhile, Mr Bailey suggested he will not base interest rates decisions on whether they help to reach net zero. However, European Central Bank markets chief Isabel Schnabel said the ECB should consider “reshuffling” its asset portfolio “towards greener issuers.”
London stock market proceeds fall £15bn in 2022
London stock markets experienced a drop-off in activity last year, with analysis showing that the total value of new listings shrank by £15bn compared to 2021. The report shows that 1.6bn was raised in total from companies going public in 2022, down from the record high of £16.3bn seen in 2021. This marks a year-on-year fall of 90%. There were 45 IPOs in the UK in 2022, a 62% decline from the 119 recorded in 2021. Globally, the number of IPOs fell by 45% and the total value declined by 61% compared to 2021.