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Daily News Roundup: Wednesday, 23rd September 2020

Posted: 23rd September 2020

BANKING

Bailey dismisses speculation on negative interest rates

Andrew Bailey, the Governor of the Bank of England, told a British Chambers of Commerce webinar on Tuesday that the resurging pandemic is “extremely difficult” news for the nation and warned that the "hard yards are ahead of us". But he cooled expectations that the Bank of England will deploy negative interest rates in the immediate future after the Bank said on Thursday that it had begun "structured engagement on the operation considerations" of how negative rates would work. "It would be a cardinal sin if we stated we had a tool in the box, which in practice we didn't think we could operationally use," he said. Bailey went on to say Chancellor Rishi Sunak faces a difficult decision over the furlough scheme and hinted that it may need to become sector-specific.

UK firms benefit from over £100bn in support amid pandemic

Over £100bn in support from banks and the government has been received by UK firms through coronavirus stimulus initiatives, with lenders distributing more than £58bn and companies claiming £39.3bn under the furlough scheme. Stephen Pegge, head of commercial finance at banking body UK Finance, noted that “the banking and finance industry has a clear plan” to help firms negotiate “these tough times,” cautioning that “it is important to remember that any lending provided under government-backed schemes is a debt not a grant. Firms should carefully consider their ability to repay before completing an application.”

Close Brothers reinstates dividend after strong results

Close Brothers has revealed that it had delivered a "strong" underlying full year performance despite the pandemic. The bank reported a 47% fall in adjusted operating profits to £144m after lifting bad debt provisions from £48.5m to £183.7m in anticipation of some borrowers defaulting because of the pandemic. Adrian Sainsbury, on his first day as chief executive yesterday, said he was encouraged by the resilience of the loan book. Close Brothers also became one of the first British banks to resume paying dividends, announcing a full-year payout of £60m.

Free withdrawal plan in stores to keep cash flowing

A new trial being launched next month will see shoppers able to make free cash withdrawals from tills in some convenience stores. The initiative, which is one of several taking place under the Community Access to Cash Pilots scheme, is being launched by cash machine network, Link, and the in-store payment services and ATM provider, PayPoint. John Howells, of Link said: "This could prove to be an important measure for keeping cash viable." Other initiatives include deposit schemes for small businesses, shared banking spaces and digital education services.

Woods says banks should stiffen resolve against dirty money

Bank of England deputy governor Sam Woods has said banks need to do more in the fight against dirty money after leaked documents revealed banks had moved £1.7trn in suspect funds over nearly two decades. "They've been doing a lot but they'll need to do more and unfortunately this is one of those things where the job is never done," Mr Woods said.

PO to start operating shared banking branches

The Post Office will start operating shared banking hubs in empty high street shops as part of a trial to improve access to cash in communities with few or no financial outlets. Gareth Shaw, head of money at Which?, said: "These pilot schemes are a very positive step - innovative solutions are badly needed to help millions of people who are struggling from being cut off from cash and banking services.”

Overdraft rates double

A quarterly report from Moneyfacts UK has revealed that interest rates on overdrafts are at an all-time high, with the average arranged overdraft effective annual rate (EAR) rising from 10.89% to 26.97% since June this year.

PRIVATE EQUITY

EQT backs Sigma housing plan

Swedish private equity firm EQT has made its first investment in the UK housing market with plans to build 3,000 rental homes in London. The scheme is a joint venture with Sigma Capital and has the backing of a £50m loan from the state. EQT is putting in an initial £300m while Sigma has committed £16m to the plan.

INTERNATIONAL

Deutsche Bank plans to close one in five branches in Germany

Some 20% of Deutsche Bank branches in Germany are to shut as a result of the coronavirus crisis, following similar moves from rival lender Commerzbank.

AVIATION

Jobs to be cut at Tui and Airbus

Plane-maker Airbus and holiday firm Tui Aviation have announced redundancies, with the former stating that 15,000 staff, or over 10% of its total workforce, will be let go. Tui meanwhile criticised “continuous changes in travel advice by various governments” as it announced its own programme of cuts, urging the implementation of a “regional risk assessment policy being applied by each government rather than a blanket travel policy.”

FINANCIAL SERVICES

FCA ruling on insurers' loyalty penalty to save consumers billions

The Financial Conduct Authority has announced that consumers could save as much as £3.7bn over the next decade under new rules which would see loyal customers pay no more for home or motor insurance than new clients. The FCA stated: “Firms use complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year on year. While some people shop around for a deal, many others are losing out for being loyal. Firms target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave.” Christopher Woolard, the FCA’s interim chief executive, noted: “We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers.” The FT’s Lombard suggests insurers may simply find other ways to reassess risk to justify putting up prices on policyholders.

TransferWise doubles profits despite ‘volatility’ from pandemic

Money transfer group TransferWise has said profits doubled in the last financial year and growth had continued in 2020 despite the “volatility” brought by the coronavirus pandemic. The Telegraph interviews CEO and co-founder Kristo Käärmann who talks about the company’s strategy and the prospects of a future float.

Scottish Financial Enterprise brings in new CEO

Sandy Begbie has been appointed the new CEO at Scottish Financial Enterprise, the representative body for the financial services industry in Scotland. Mr Begbie was most recently chief transformation officer at Tesco Bank after working at Standard Life Aberdeen.

Brexit and the City: Brussels’ new battle to rival London in finance

The FT reports on recent comments from Brussels which suggest the UK’s decision to breach international law with the Internal Market Bill has further eroded the EU’s willingness to offer financial market access.

UK insurer Beazley doubles COVID-19 loss estimate

Insurance firm Beazley has doubled its estimate of losses resulting from the coronavirus pandemic, citing an increase in claims relating to event cancellation cover.

LEISURE & HOSPITALITY

Pub chiefs rail against latest restrictions

Proposals to impose a curfew on hospitality venues set to be enforced by the Government from Thursday are being opposed by pub industry leaders, with both Tim Martin, chairman of JD Wetherspoon, and Simon Emeny, chief executive of Fuller’s saying pubs were not part of the problem. This comes as Wetherspoon’s announced that 450 jobs from six of its airport pubs at Gatwick, Heathrow, Stansted, Birmingham, Edinburgh and Glasgow would be lost. Meanwhile, Whitbread has announced up to 6,000 redundancies across its hotels and restaurants. The company said the move was in response to the end of the furlough scheme next month as well as forecasts that demand will remain subdued.

Wahaca lenders take £25m haircut

Mexican-themed restaurant chain Wahaca is set to close about 10 of its 30 outlets as part of a financial restructuring. Shareholders and lenders including NatWest will also write off about £25m under a proposed CVA.

MANUFACTURING

Manufacturing recovery slowing down

According to the CBI, Britain’s manufacturing sector is struggling to regain momentum amid fears of a second lockdown and uncertainty about Brexit. The CBI found that ten out of seventeen sub-sectors suffered a drop in output, an improvement on 16 last month. The biggest decline was registered in motor vehicles and transport equipment. A net balance of minus 48% of respondents told the CBI that their order books grew in September, down from minus 44% in August.

REAL ESTATE

Stamp duty holiday spurs rise in house sales

August saw house sales rise by 15.6% across the UK after the Government introduced a temporary stamp duty holiday. Sales rose by 15.6% in the month after climbing by 14.5% in July, figures from HMRC reveal. The tax break, which will last until March 31 2021, saw an estimated 81,280 sales take place in August and also helped to protect nearly 750,000 jobs in the housing sector and wider supply chain. However, transactions were still down by 16.3% compared with the same month in 2019, figures show.

RETAIL

Asda sale sees one contender leave race

Lone Star Funds has bowed out of the race for supermarket chain Asda, with rival asset manager Apollo emerging as the likely suitor. This comes after Asda owner Walmart was forced to place it on the market following a Competition and Markets Authority block on merger talks with Sainsbury’s in 2019.

ECONOMY

CBI: New measures a blow to business

The Prime Minister said yesterday that tighter rules to prevent the spread of COVID-19 could last six months and the advice was that by next spring “things will be vastly, vastly improved.” But the director-general of the CBI, Carolyn Fairbairn, said the six-month timetable “will come as a shock” to business, adding reversing plans to bring more employees back to offices was a “crushing blow for thousands of firms”. Elsewhere, lobby group London First said advising people to work from home risked "derailing an already fragile recovery". Mike Cherry, national chairman of the Federation of Small Businesses, added that it was now vital that the Government “steps forward with an ambitious second round of support measures to help firms survive."

Recovery threatened by new restrictions

Economists warn that the imposition of further Covid restrictions could mean growth flatlines over the last few months of the year. Paul Dales at Capital Economics says that the 10pm curfew on restaurants and bars and another homeworking push could mean GDP does not rise at all in October, November or December. Samuel Tombs at Pantheon Macro adds that if the Government ordered pubs, restaurants and other consumer businesses to close again then GDP would fall to 15% below pre-Covid levels as long as the restrictions lasted, compared to a 5% shortfall without them. The Telegraph’s Tom Rees proposes that if businesses fear ongoing stop-start restrictions they could be persuaded to hold back investment, pushing other businesses over the edge.

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