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Daily News Roundup: Wednesday, 20th July 2022

Posted: 20th July 2022

BANKING

Banks boost pay to ease cost of living pressures

Santander is to award a 4% pay rise to around 11,000 UK-based employees to help staff cope with the rising cost of living. CEO Mike Regnier said the increase “will make a real difference to the majority of our customer-facing and contact centre staff who are committed to helping our customers and businesses prosper in the current economic climate.” All employees earning under £35,000 will be eligible for the rise, with this covering around 60% of the bank's UK workforce. Barclays, Lloyds and NatWest all announced similar pay increases for lower-paid staff as soaring inflation put pressure on household budgets. Meanwhile, Virgin Money is to give staff earning £50,000 or less - almost four-fifths of its workforce - a one-off £1,000 cost of living payment in their August pay packets. This comes after an average increase of 5% in base salary in January and is not linked to Virgin’s annual pay review or bonus arrangements.

Banks agree to lend on cladding-hit flats

Six of Britain's biggest banks have agreed to offer mortgages on buildings with fire safety defects. Barclays, HSBC, Lloyds, Nationwide, NatWest and Santander will lend on flats in blocks with cladding, the first time that banks have agreed to lend on such properties, and it could mean homeowners are now free to sell up after years of uncertainty. Thousands of flat owners have been trapped in dangerous high rise blocks and unable to sell since the Grenfell tragedy in 2017, because lenders deemed the buildings too risky to lend on. UK Finance said the banks would lend on buildings that will be “remediated by developers” or have repairs paid for by a Government scheme. Buildings under 11 metres are not covered by the new rules. The Government said they would be investigated on a case by case basis.

PRIVATE EQUITY

PE firms looking to raise more money than ever before

The Wall Street Journal looks at how an increasing number of private equity firms are trying to raise more money than ever before. Data from Prequin shows that there are 2,845 funds currently in the market, collectively aiming to raise over $1trn in capital - both figures represent increases of more than 60% over the beginning of 2021. Among those seeking capital are at least nine private-equity funds with targets of $20bn or more, including the latest vehicles from Blackstone, Hellman & Friedman and Apollo Global Management. Together, these nine megafunds are responsible for more than $216bn of the total being sought.

Abrdn to sell private equity arm

Fund manager abrdn is preparing to offload the business which manages private equity funds as part of its ongoing streamlining under chief executive Stephen Bird. Rothschild has been appointed to oversee the process of finding a buyer for the division which managed nearly £14bn in assets at the end of last year.

INTERNATIONAL

Swedbank misses Q2 profit forecasts

Swedbank has reported a smaller-than-expected net profit for Q2, with higher costs and lower trading gains taking a toll despite increased income from mortgages on the back of higher interest rates. Sweden's biggest mortgage lender said net profit for April-June came in at 4.71bn Swedish crowns versus 4.62bn in the preceding quarter and 5.56bn a year ago. The result was short of a mean forecast of 5.01bn crowns, according to Refinitiv estimates. CEO Jens Henriksson said: “The result for the second quarter was strong with the second-highest net interest income to date. Credit quality is good and credit impairments are low."

FINANCIAL SERVICES

FCA to take more ‘proactive’ approach

The Financial Conduct Authority (FCA) is preparing to take a more “proactive” approach to identifying new financial threats, saying it will look to enhance the way it patrols for emerging risks in the financial system, including “beyond jurisdiction where necessary”. In its annual report, the FCA said it is “being more proactive and enhancing our horizon scanning capabilities so we can better spot and respond to emerging risks,” including scenario analysis that will enable the watchdog to “consider where risks may be most likely to grow both inside and outside the perimeter.” Chief executive Nikhil Rathi said the FCA had hired almost 500 people in 2022 and was aiming to bolster headcount by a further 500. The FCA’s staff numbers fell by around 3.5% in 2021/22, totalling 3,766 at the end of March. The report also shows that total group operating costs were £586.8m, of which staff costs of £339.7m accounted for 58%. Of the total operating costs, the FCA said recruitment, training and wellbeing cost £10.1m (1.7%).

Chancellor considering powers to overrule financial regulators

Nadhim Zahawi has said the Government is considering taking more power to intervene in financial regulators’ decisions in a post-Brexit overhaul to regulation. In his first speech as Chancellor, Mr Zahawi said he was still undecided on the move, which could cause tension with the independent Bank of England. In his Mansion House speech, the Chancellor said: “There’s been some speculation about the Government taking further powers to intervene in financial regulation, in the public interest. That is something we’re looking at and I’m keeping an open mind.” He added that it would not be in the Financial Services and Markets Bill, which he will introduce today. Mr Zahawi added that his priorities for the coming months will be to control inflation, create the conditions for a private sector recovery and a “post-Brexit vision” for the financial services industry.

Ombudsman receives complaints over insurance premium rises - and falls

The Financial Ombudsman Service (FOS) has revealed that it has been receiving complaints from people after the cost of their insurance has gone down. This has led people to question whether they had been treated fairly in the past, the FOS said. Customers have also been questioning rises in their premiums and finding they were raised in error, for example, if a previous inquiry about the policy has been incorrectly recorded as a claim. In the majority of cases, the FOS has found that the insurer has acted fairly. Some 1,004 complaints were received by the ombudsman about insurance pricing in 2021/22, down from 1,507 in 2020/21. Of the complaints dealt with in 2021/22, about one in five (19%) were upheld in the consumer's favour.

Rule shake-up will let retail investors join floats

Retail investors will be able to take part in all types of fundraisings under proposed reform of City rules that will help London compete with overseas stock markets. While private investors are often penalised when companies seek to raise money quickly through placings that target institutions, a Government-commissioned review into how companies raise money has called for a level playing field between institutional and individual investors. It recommended that retail shareholders be given “due consideration” in all types of fundraisings, with the “default assumption” they will be included.

LV= faces pressure over possible payout

Critics have hit out at mutual insurer LV= over its refusal to say whether it will give outgoing chief executive Mark Hartigan a payout, following his exit from the firm. Labour MP Gareth Thomas said: “It beggars belief that having wasted over £33m of members money on a deal they had never agreed to embark on that he should get any sort of pay off.”

REAL ESTATE

Bank of Mum and Dad may close its doors

The Bank of Mum and Dad may no longer be an option for those looking to buy their first property, as the cost of living crisis makes helping out family members harder than ever. Almost half of those who are supporting family members financially will struggle to continue offering support over the next year, while even more are concerned about how soaring inflation will affect them, research from Canada Life shows.

RETAIL

Amazon pays almost £3bn in UK tax

Amazon paid nearly £3bn of tax in the UK last year, with its tax contributions made up of £648m in direct taxes through National Insurance, business rates and other levies, while £2.1bn came via indirect taxes, including VAT. The retail and tech giant’s tax contributions place it among the top 15 taxpayers within the UK’s biggest 100 companies. Amazon made £23.2bn of revenue in the UK last year, up from £20.6bn a year earlier. HMRC handed Amazon 's core UK division a tax credit of just over £1m last year. This was part of €1bn in tax credits provided to Amazon by governments across Europe, up from €56m a year before.

Ocado Retail boss steps down

Melanie Smith is stepping down from her role as CEO of Ocado Retail after three years in the business. She will be replaced by Lawrence Hene, previously deputy CEO of Ocado Retail, on an interim basis.

ECONOMY

Bailey: 0.5 percentage point rate rise ‘on the table’

The Bank of England will consider a 0.5 percentage point increase in interest rates in August, governor Andrew Bailey said yesterday. He told City figures at the annual Mansion House dinner that a 50 basis point increase in the interest rate, currently at 1.25%, will be “among the choices on the table” at the August 4 Monetary Policy Committee meeting. Mr Bailey said there will be “no ifs or buts” in the Bank’s commitment to bringing inflation down to its 2% target, saying: “That’s our job, and that’s what we will do.” He said that the economy had faced “an almost unprecedented series of disturbances” – pointing to the pandemic, the post-lockdown recovery and labour force issues – but warned that Russia’s war with Ukraine “is now the largest contributor to UK inflation by some way.” Mr Bailey added: “There is an economic cost to the war, and we all have to recognise that, but at the Bank it will not deflect us from setting monetary policy to bring inflation back to the 2% target.”

OTHER

Wealth gap is widening

The wealth gap between the top tenth of households and those in the middle tenth has expanded to a record £1.2m per adult, research by the Resolution Foundation has found. In 2006 the average household in the richest tenth held wealth of nearly £900,000 more per adult than a family in the middle decile. By the start of 2020 that gap had increased to more than £1.2m per adult, even after accounting for inflation. The think-tank also found that wealth was not being "levelled up,” with the share held by families living in the south of England, including London, up from 42% of total wealth in 2006/08 to 46% in 2018/20. Jack Leslie, senior economist at the Resolution Foundation, said: “Policymakers must prioritise supporting wealth-less households during the current crisis, as well as recognising how wealth is reshaping Britain, and not always in a positive way." He also noted that the cost-of-living crisis “is exposing families who have no financial buffer to cope with rising cost pressures.”

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