Inflation risks derailing leisure and hospitality recovery
Andrew Dalton of BTG Advisory considers the climate for the UK’s leisure and hospitality sector, saying that it “remains in a precarious state” and warning that optimism that came as coronavirus restrictions were lifted has since waned. Mr Dalton highlights the impact of the cost of living crisis and how high inflation and low real wage growth have undermined consumers’ purchasing power, putting the recovery in the leisure and hospitality sector at risk. He also points to the sector’s Covid-related debt, a backlog of rent arrears accrued during the pandemic, and a shortage of cash reserves. Mr Dalton warns that many leisure and hospitality businesses tend to operate on low profit margins, “and now must return to self-sustainability amid historically high debt levels, rising inflation, softer consumer confidence and lower discretionary spend.” While he says that many businesses that successfully navigated the past two years will endure through a potential recession, “there will certainly be swathes of previously viable businesses which may not survive.” He advises that struggling businesses should engage an adviser at the early signs of financial distress to maximise the turnaround options available.
Lloyds issues urgent scam warning
Lloyds Bank has issued an urgent warning due to a recent spike in the number of advance fee loan scams, a type of fraud involving an upfront fee victims pay to a company appearing to offer them a loan. Reports of such scams have increased by 90% in recent months, with victims losing an average of £231, prompting the bank to issue a warning to consumers. Lloyds said scammers were posing as representatives of legitimate loan companies – even sending documents to back up their claims. Liz Ziegler, retail fraud and financial crime director at Lloyds Bank, warned that fraudsters are praying on customers with poor credit scores and those who in financial difficulty as living costs rise. She added: "Organised crime gangs will ruthlessly exploit any change in consumer behaviour." Timothy Campbell, of cybersecurity firm Mimecast, has urged consumers to be vigilant. He said: "There is no doubt that scammers are taking advantage of the cost-of-living crisis, as those in desperate times are less likely to conduct proper checks if they can get some desperately needed money easily.”
Police raid Deutsche Bank in greenwashing inquiry
German police have raided the offices of Deutsche Bank and its asset management unit DWS as part of an investigation into allegations of greenwashing. Officers entered the Frankfurt offices of Germany's largest lender following inquiries into DWS by the German regulator BaFin and the US Securities and Exchange Commission. The probes stem from claims by Desiree Fixler, DWS’ former head of sustainability, who alleges that the company inflated its environmental, social and governance credentials. Ms Fixler said DWS misled investors by claiming that hundreds of billions of its assets under management were "ESG integrated." DWS has since scaled back its sustainability claims. In its 2021 annual report, DWS disclosed only €115bn in ESG assets for the year – 75% less than the €459bn reported the year before.
Citi may retain Russian banking licence despite trying to sell commercial arm
Citigroup CEO Jane Fraser says the US lender may retain a banking licence and some operations in Russia, even as it tries to sell its consumer and commercial arms in the country.
Bank of England to take over collapsed stablecoin cryptocurrencies
Treasury plans will see the Bank of England take over collapsed stablecoin companies to prevent a cryptocurrency crash hitting financial stability. A Government consultation said issuers would be placed into special administration by the Bank to protect consumers if they fail. The proposals mean companies offering stablecoins - cryptocurrencies designed to hold their value - would come under similar rules to banks. The consultation proposes that the Bank would have the power to direct administrators for systemic “digital settlement asset” firms under the Financial Market Infrastructure Special Administration Regime. The Treasury said that it wants to amend existing rules before “any consideration on the need for a bespoke legal framework” for big stablecoin providers. The Treasury said: “Events in cryptoasset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks.”
UK will not diverge far from EU rules, says Treasury official
The Treasury’s chief of financial services has moved to calm fears about a post-Brexit bonfire of financial regulation, saying the EU’s financial rules shared the same goals and were designed in part by UK lawmakers. Ministers have long-promised a post-Brexit overhaul of EU rules in UK financial services, with the financial services bill announced in the Queen’s speech last month expected to set out a slew of reforms. Speaking at a Bloomberg UK policy series event, Gwyneth Nurse, director general of financial services at the Treasury, said the UK would not diverge far from the bloc’s rules, and it was important to note that Britain played a central role in coming up with EU regulation to begin with. Ms Nurse said that while there “will be differences” with the bloc, the Treasury can also be clear that “there won’t necessarily be massive differences in terms of broad objectives.”
City watchdog outlines guidelines for reporting services providers
The Financial Conduct Authority (FCA) has sent out a Dear CEO letter outlining how it expects data reporting services providers (DRSPs) to behave. The City watchdog has told firms that provide reporting details of transactions on behalf of investment firms that they play a key role in market transparency and integrity. The letter from the FCA sets out the key risks of harm in the DRSP portfolio and what it expects DRSPs to do to minimise potential risks to consumers. The regulator expects DRSPs to monitor these risks and to have appropriate strategies in place to address them. It also told DRSPs it may conduct work to assess their operational resilience capabilities, saying that if they are insufficient, “it may lead to disruption for market participants, consumers and regulators, or the loss, compromise, or lack of availability of data.”
FCA appoints chairs to panels
The Financial Conduct Authority (FCA) has appointed new chairs to lead two of its most important panels. Andy Mielczarek will be chair of the FCA Smaller Business Practitioner Panel, replacing Marlene Shiels, and Helen Charlton will be chair of the Financial Services Consumer Panel, succeeding Wanda Goldwag. The new chairs will take up their roles for a three-year term, starting today. The Consumer and Smaller Business Practitioner Panels are independent, statutory bodies which represent the interests of consumers and those who work in small or medium-sized financial services firms. Their functions are to supervise the FCA as it develops policy and its regulatory approach.
LEISURE & HOSPITALITY
Brewdog narrows loss after boost in beer volumes
Brewer and pub group Brewdog has reported a 21% rise in annual revenue, from £238m in 2020 to £286m in 2021. This helped the group to narrow its pre-tax loss from £12.5m to £9.4m last year. The boost was driven by a 20% increase in beer volumes to 962,000 hectolitres, which led to an improvement in gross margins.
More gigafactories needed for EV drive
The UK may struggle to produce enough batteries to meet demand for electric vehicles (EV) as plans to build more factories have stalled. The government has pledged £1bn of support to boost the UK’s battery supply chain, and industry experts have estimated that the country needs four to six gigafactories to sustain a healthy EV industry. Andy Palmer, chief executive of EV maker Switch Mobility and chairman of battery start-up InoBat, has warned that there are few suitable sites for building EV battery plants, saying: “In terms of shovel-ready land in the UK, there isn’t an obvious glut of places to go.”
Mortgage borrowing falls by 36%
The number of mortgages approved by UK lenders has fallen to its lowest since June 2020, with 65,974 mortgages approved in April. This was down from 69,531 in March and 73,220 in January. The figures from the Bank of England also show that net mortgage borrowing dropped to £4.1bn last month from £6.4bn in March. Mortgage approvals for house purchases also fell, from 69,500 to 66,000. The average rate for a new mortgage rose to 1.82% in April, up from 1.5% in December after the Bank of England raised interest rates four times over the period to reach a 13-year high of 1%.
Credit card borrowing rises at fastest rate in 17 years
Bank of England data shows that credit card borrowing is rising at its fastest annual rate in 17 years. The annual growth rate for credit card borrowing hit 11.6% in April – the highest figure since November 2005. The figures also reveal that the rate for all consumer credit increased to 5.7% in April, up from 5.2% in March. This marks the fastest rate of growth since before the pandemic. UK consumers have now put more than £3bn on credit cards in the past three months - and another £1.6bn on other forms of credit, such as car finance and personal loans. Individuals borrowed an extra £1.4bn in consumer credit in April, exceeding the £1.3bn increase recorded in March. April’s increase was made up of £700m extra on credit cards and £700m on other forms of credit. Andrew Montlake, managing director of the mortgage broker Coreco, said the rise in consumer credit will “trigger even more alarm bells at the Bank of England,” adding that “it shows the economic storm clouds are getting darker by the day.” The Bank of England figures also show that £5.7bn was saved by bank and building society account customers in April, with a further £600m stashed in National Savings and Investments accounts. The increase in the amount held in savings is well over the pre-pandemic average of £4.6bn, but lower than the £6.6bn in extra savings recorded in March.
Eurozone inflation hits record high
Annual inflation in the 19 countries that use the euro hit a record 8.1% in May, passing the previous peak of 7.4% reached in March and April. The figures from EU statistics agency Eurostat will add to pressure on eurozone officials to raise interest rates in an effort to rein in rising prices.