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Daily News Roundup: Wednesday, 25th May 2022

Posted: 25th May 2022

BANKING

Banks and insurers told to get ahead of climate risk

The Bank of England has urged banks and insurers to act now on climate risks or face a hit to annual profits of up to 15%. The warning comes after the first comprehensive stress test of how Britain's financial system will cope with climate change and the shift to a net zero carbon economy by 2050. BoE deputy governor Sam Woods said: "The first key lesson from this exercise is that over time climate risks will become a persistent drag on banks' and insurers' profitability - particularly if they don't manage them effectively. While they vary across firms and scenarios, overall loss rates are equivalent to an average drag on annual profits of around 10-15%." However, Mr Woods went on to warn banks and insurers against cutting off finance to carbon-intensive sectors of the economy too quickly, arguing this “could prove counterproductive and have wide-ranging macroeconomic and societal consequences.” Critics hit out at the Bank over its climate stress tests, with Tory MP Steve Baker saying it needs to "focus on the basics of monetary economics, and not start leaning into much longer term problems in areas of great controversy." The sentiment was echoed by Ruth Lea, economic adviser to Arbuthnot Banking Group, who added: "Given the economic problems that this country faces, the Bank's dealing with climate change is a horrendous distraction from its core activities".

JPMorgan braced for $1bn losses on Chase venture

JPMorgan is ready to lose around $450m this year in its UK digital banking venture, the bank’s international consumer growth boss Sanoke Viswanathan said this week. Despite the lender passing the 500,000 customer mark in the UK on Tuesday, Viswanathan said the firm wasn’t expecting Chase to break even until 2027 or 2028, incurring over $1bn in losses over the period.

Barclays begins £1bn share buy back

Barclays has finally begun to buy back £1bn of its shares after delays caused by a compliance blunder. The bank oversold £11.5bn of structured notes in the US over a period of about a year, overshooting limits agreed with the country's regulators. Cheering investors pushed its shares up 5p, or 3.2%, to 162¾p on Tuesday.

PRIVATE EQUITY

UK continues to be venture capital of Europe

The UK remains well ahead of France and Germany in the private equity stakes, attracting ten more new investors to the market last year. Britain now has 351 local investors actively pumping cash into the country's start-ups. Germany is in second place with 199 and France in third with 128. Additionally, the portfolios of British investors are the most successful out of any in a European comparison, Vienna University researchers said. “Of a total of 130 European start-ups valued at $1bn, the so-called unicorns, 68% have at least one British venture capitalist on board.” Analysts are braced for a slowdown in the private market, however, with rising interest rates expected to dent VC firms' ability to raise capital and public market volatility hampering exits via IPOs.

INTERNATIONAL

Canada's banks brace for a Q2 earnings fall

Canada's top six banks are expected to post an average 12% drop in second-quarter earnings from the previous three months. It is said that strong loan growth and margin expansion from rising interest rates has been outweighed by increased expenses and loan-loss reserves and lower investment banking revenues. Canada's slowing housing market is likely to weigh on banks' main growth engine more in the second half of the year, investors said.

Global banks book $12bn in Russia provisions

International banks exposed to Russia have booked more than £12bn in provisions in the first quarter to brace for potential losses. European lenders are the most exposed. Raiffeisen leads the pack with €2.3bn in liabilities. SocGen is running down its cross-border exposure to Russia, which was €2.8bn euros as of March 31st. Italian bank UniCredit comes in third with €1.2bn euro first quarter provision.

Citi in talks to buy Deutsche Bank Mexico

Citigroup is looking to buy Deutsche Bank's Mexican bank as a means to set up its own unit in the country. Talks are in early stages and may not result in a deal, sources told Bloomberg.

AVIATION

KLM faces court over 'greenwashing' adverts

Dutch airline KLM is being taken to court by the environmental law group Client Earth which argues the airline's adverts and carbon offsetting scheme give a false impression of the sustainability of its flights and plans to tackle the pollution they cause. Unless KLM agrees to cease what campaigners describe as greenwashing, a Dutch court will begin examining the case. Sky News notes that this is the first such case in the world against the aviation industry, according to the Sabin Center's Global Climate Change Litigation database.

FINANCIAL SERVICES

Intangible nature of mobile payments leads to overspending

Researchers from the University of Puget Sound in Washington have revealed that people who use mobile payment methods such as Apple Pay, Google Pay and Samsung Pay are more likely to overspend. Participants who used mobile payments had 34% higher odds of spending more than their yearly income than those who used other payment methods, the study found. “Overspending via mobile payment may be linked to the intangible nature of the transaction, coupled with its convenience, which allows the user to detach from the transaction,” the researchers said.

Third of workers in financial services industry plan to leave

A new report from LemonEdge has found that a third (31%) of financial services and banking professionals are planning to leave the industry due to high pressure. When uncovering why workers are planning to leave their positions in record numbers, the study found that financial services and banking professionals state a heavy workload (42%) is the main contributor to feeling heightened pressure within their role. This is closely followed by manual processes (36%), long working hours (32%), tight deadlines (26%), and increasing demands from management (25%).

Crypto links with banks pose threat to financial stability, says ECB

The European Central Bank has warned that financial stability will be put at risk from the more complex and interconnected ties between the crypto industry and banks and asset managers.

REAL ESTATE

Shaftesbury cashes in on London’s soaring rents

Shaftesbury has benefitted from soaring London rents, as its portfolio valuation swells with the opening of the new Elizabeth line. The real estate investment trust raked in nearly £19m in rent in the six months to 31 March, as its offices, hospitality and leisure, retail and residential portfolio increases in value by 7.5% on average. The London-listed firm is currently undergoing a £3.5bn merger with competitor Capital & Counties Properties (Capco), though one key investor has raised concerns over the deal.

RETAIL

Grocery prices increase at the fastest pace in 13 years

The price of the weekly grocery shop has risen by 7% in the past month, the highest level of inflation in 13 years, according to market research group Kantar. Fraser McKevitt, head of retail and consumer insight at Kantar, said: “People are really feeling the squeeze at the supermarket tills and they’re having to stretch their budgets further to accommodate rising prices.” Despite the price rises, overall supermarket sales fell by 4.4% in the three months to 15 May, as the reopening of bars, cafes and restaurants allowed more people to dine out rather than cook at home. Sales declined at all the big four supermarket chains, with Morrisons hit hardest. The Bradford-based chain’s sales slid 9.5% taking its share of the take-home grocery market to 9.5%, just half a percentage point ahead of Aldi.

ECONOMY

UK public borrowing falls as economy bounces back from pandemic

Government borrowing was £18.6bn last month, according to the Office for National Statistics. The figure was down by £5.6bn from a year ago but is the fourth-highest April figure since records began in 1993. The figure is down slightly on the £19.1bn forecast by the Office for Budget Responsibility. In the fiscal year to March, the public sector borrowed £144.6bn, less than half the borrowing in the previous year, as the economy bounced back from the pandemic. Borrowing fell in April compared with last year because tax receipts increased as the economy grew and the withdrawal of government pandemic support schemes for households and businesses brought down spending. The freezing of tax thresholds over recent years and the hike in NICs also saw tax receipts rise to £70.2bn in April, £9.9bn more than in the same month last year. However, surging inflation is expected to wipe away any recent boost to public finances. The Chancellor Rishi Sunak said: “While we are doing what we can to help families deal with rising prices, inflation is also pushing up our spending on debt interest, which is expected to reach £83bn this year. We must take a balanced and responsible approach to support people now, while also not burdening future generations, and we’re on track to drive public debt down by 2024-25.”

UK economic growth falls to 15-month low

The S&P flash PMI for May showed growth in the UK private sector fell to a score of 51.8, down from 58.2 in April and a 15-month low. The month-on-month loss of momentum in May was the fourth-largest on record and exceeded anything seen prior to the pandemic. Some experts said the figures were likely to understate the true scale of Britain’s economic slowdown because they exclude the retail and public sectors. The UK’s services sector barely grew with a PMI reading of 51.8, down from 58.9 previously and far below the 57 forecast by analysts. The manufacturing sector held up a little better with its PMI reading at 54.6, down from April's 55.8 and below the expected reading of 55. Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data “signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come.” Businesses cited the cost-of-living crisis, Brexit, rising interest rates, China’s lockdowns and the war in Ukraine as key reasons for the gloomy outlook. The pound fell sharply against the euro and the dollar on the news. PMI data for the Eurozone showed a continued robust growth in May.

OTHER

US Treasury closes loophole for Russian debt payments

The US Treasury department has decided not to renew a sanctions waiver for Russian debt payments in a move that could push the country closer to default.

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