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Daily News Roundup: Wednesday, 23rd November 2022

Posted: 23rd November 2022

BANKING

UK watchdog calls for reform of credit rating market

The Financial Conduct Authority has called on credit reference agencies to improve the quality of their data amid concern that millions of people could be excluded from financing due to inaccurate information. The regulator recommended creating a new body to oversee arrangements about the sharing of credit information and improve the quality and coverage of credit information. “We want to see industry reform to help deliver the changes, but in the meantime, it is important consumers know how to access their credit information and talk to their lenders if they are facing difficulties,” said Sheldon Mills, executive director, consumers and competition at the FCA.

Average five-year fixed less than 6% for first time in seven weeks

The average five-year fixed mortgage rate has fallen below 6% for the first time in nearly two months, according to Moneyfacts. However, the average two-year fixed-rate mortgage is still above the 6% mark, at 6.13%. Rachel Springall, a finance expert at Moneyfacts commented: "Borrowers may feel they have to be patient for a little while longer yet before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty."

City tax grab will bring job losses

The new Lord Mayor of the City of London has warned that financial services firms may have to cut their headcount to offset increased taxes. Although the Chancellor Jeremy Hunt reduced the bank surcharge to 3% from 8% in last week’s Autumn Statement, lenders will still pay a higher headline corporation tax than most sectors. Nicholas Lyons said finance firms will “have to cut costs” if they “want to continue to be able to pay dividends to pensioners”.

Starling labels crypto activity high risk

Starling Bank has announced a block on all crypto transactions for customers, describing the activity as “high risk and heavily used for criminal purposes.” In a message sent to customers, Starling said: “We’ve taken the decision to prevent all card payments to crypto merchants and to implement further restrictions on outgoing and incoming transfers.”

INTERNATIONAL

SocGen and AllianceBernstein agree equities merger

French bank Société Générale and US investment company AllianceBernstein have agreed to merge their equities research and cash equities businesses. SocGen plans to take a 51% interest in the venture, with an option to take 100% ownership after five years.

Old Mutual applies for banking licence

Old Mutual has applied for a banking licence in South Africa. The move would help it cross-sell products across the group and enable the insurer to accept retail deposits, providing a cheaper source of funding.

Credit Suisse Securities (China) lays off one-third of investment bankers

Credit Suisse has laid off about one-third of its China-based investment banking team and nearly half of its research department.

FINANCIAL SERVICES

L&G defends risk management and blames mini-Budget for LDI crisis

Legal & General, one of the biggest providers of liability-driven investment strategies, have defended their risk management when questioned on the LDI crisis by the House of Lords’ industry and regulators committee. L&G’s chair Sir John Kingman laid the blame squarely at the feet of Liz Truss and Kwasi Kwarteng accusing their mini-Budget of causing the gilt market panic. “No one involved in this — the regulators, the central bank, the government, the advisers, the funds, the sponsors, or us — believed that it was a plausible scenario that the government would do something that would create such extraordinary instability in the market in two trading days,” Sir John said. Sir Nigel Wilson, L&G’s chief executive, said the speed of the bond sell-off had “caught us all by surprise, adding: “Our modelling had never taken into account the degree of stress that there was in the market.” But Alex Brummer in the Mail isn’t buying it. He points out that the Bank of England warned of the dangers associated with LDIs back in 2018 and given the main lesson from the financial crisis was highly leveraged products can explode at any time, L&G should have been more carefully monitoring the risks. “L&G’s decision to embrace LDIs so warmly [was as badly judged as the mini-Budget]. Insurers, pension funds and banks are encouraged to hold gilts because they are the safest instrument around. Exposing them to the casino economy is unconscionable.”

Bankman-Fried ran FTX as personal fiefdom, court hears

The first bankruptcy hearing for FTX was held on Tuesday with attorneys for the collapsed crypto exchange describing how former CEO Sam Bankman-Fried ran the business as his "personal fiefdom" with $300m spent on real estate for his parents and senior staff. FTX filed for protection in the US after traders pulled $6bn from the platform in three days and rival exchange Binance abandoned a rescue deal. The collapse has left an estimated one million creditors facing losses totalling billions of dollars. James Bromley, a US restructuring lawyer at Sullivan and Cromwell, said the company’s lawyers had seen “a lack of corporate controls at a level that none of us in the profession have ever seen”. It is estimated that some 80,000 British traders have been left out of pocket by the implosion of the cryptocurrency exchange, which was not regulated in the UK and was not authorised to offer services under the Financial Conduct Authority’s crypto asset rules.

Patrick Thomson: the man who ‘helped save UK pensions’

The Guardian interviews the chair of the Investment Association, Patrick Thomson, about the crisis sparked by Liz Truss and Kwasi Kwarteng’s mini-budget, which prompted the near-collapse of a string of niche pension funds. The episode raised concerns over the way some fund managers arranged controversial hedging contracts for workplace pension funds, which were blamed for magnifying the market turmoil. But Thomson insists the crisis was no “smoking gun” and that his members do not require any extra oversight from regulators. He adds that the market meltdown was a rare event, and says no one could have predicted that the investment strategies used on behalf of pension funds would lead to a market sell-off.

GSAM fined $4m over ESG failures

The US Securities and Exchange Commission has fined Goldman Sachs Asset Management $4m for failing to follow its policies and procedures involving environmental, socially oriented and other investments. The charges were specifically over "policies and procedures failures involving two mutual funds and one separately managed account strategy marketed as Environmental, Social, and Governance (ESG) investments," the regulatory agency said.

European asset managers blame regulatory confusion for downgrade of ESG funds

Confusion over new EU sustainability rules has forced Europe’s top asset managers to downgrade ESG funds, despite European officials providing fresh guidance over the summer.

Investment manager Abrdn poised for FTSE 100 return

A recent surge in the share price of Abrdn has restored the group’s market capitalisation to $4.1bn and put the investment manager on course for a return to the FTSE 100 index.

JPMorgan Asset Management launches active ETFs in Australia

JPMorgan Asset Management has listed two actively managed ETFs on the Australian Securities Exchange amid robust growth in Australia’s ETF industry.

MANUFACTURING

Danish Crown to build £100m UK plant as bacon demand rebounds

A Danish pork producer is to build a £100m gammon and bacon factory in in Rochdale, Greater Manchester. The factory will be completely powered by renewable energy and will create 300 jobs once it is operational. Danish Crown’s new factory, which is its first UK production facility in three years, will have the capacity to produce more than 900 tonnes of bacon and gammon per week when it is fully operational. It is expected to be up and running in the second half of 2023. 

REAL ESTATE

House sales held steady in October

HM Revenue & Customs figures reveals that house sales held steady in October, with the volume of transactions rising by 2% month-on-month. Data shows an estimated 108,480 sales took place, 38% higher than in October 2021, when a stamp duty holiday in England and Northern Ireland ended.

ECONOMY

OECD: UK is second-worst performing economy in rich world

A new forecast from the Organisation for Economic Co-operation and Development predicts the UK will be among the worst performing economies in the rich world next year. The forecasts are the first to come from a major international institution following the Government’s autumn statement last week. The OECD said that the British economy was on course to contract by 0.4% of GDP next year with GDP only rising 0.2% in 2024. Among G20 nations, only Russia is forecast to perform worse over the next two years. In the European Union, Germany and Finland are on course for the worst performance contracting by 0.3% of GDP in 2023. The OECD’s expectation for the UK is more pessimistic than the OBR’s, which forecasts a relatively robust return to growth in 2024 after a 1.4% contraction next year. The UK’s downturn will be driven by “reduced purchasing power and tighter monetary policy [that] are expected to take a toll on consumer spending, and rising long-term interest rates will lead to a slowdown in the housing market,” the OECD said. “Business investment will remain subdued over the projection period due to a higher cost of capital and lingering uncertainty.”

Energy support pushes up public borrowing

Figures from the Office for National Statistics (ONS) show the Treasury borrowed £13.5bn in October - £4.4bn more than the previous year and the fourth highest October deficit since records began in 1993. However, this is less than the £19.1bn expected by economists thanks to higher tax receipts – income tax and VAT receipts rose by 8% and 6% respectively and overall tax receipts were up 5% to £51.7bn in October. Government energy bill subsidies and rising debt interest payments contributed to the increase in borrowing.

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