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Daily News Roundup: Wednesday, 26th April 2023

Posted: 26th April 2023

BANKING

Santander profit climbs 11%

Santander UK saw a pre-tax profit of £547m in the first quarter of the year, with this marking an 11% increase on the £495m recorded in Q1 2022. Total operating income increased by 11% to £1.3bn, with this largely driven by higher interest rates. However, mortgage applications fell by 37% and mortgage balances fell by more than £4bn amid a slowdown in the housing market. The bank saw customer deposits across current accounts, savings and business banking accounts fall by around £5bn. Santander set aside £61m in credit impairment charges, £9m more than the previous year due to the weaker economic environment. Santander UK chief executive Mike Regnier said: “We have delivered a good set of results against a backdrop of turbulence in the global financial sector and ongoing challenges for the UK economy.” He added: “We agree with the Bank of England that the regulatory regime means that UK banks are well-positioned to navigate such difficulties.” Across the group as a whole, Santander saw its profit climb just 1%, with a €224m windfall tax payment in Spain having an impact. 

NatWest chair to step down

Howard Davies has announced plans to step down as chair of NatWest. Speaking at the bank’s AGM, Mr Davies said he expects a replacement to be found and handover completed by July next year. Noting that nine years was the maximum recommended tenure under the UK corporate governance code, Mr Davies told shareholders: “I am approaching the point where I will have served 8 years on the board so it is appropriate to initiate the search for my successor as chairman in the coming months.” Separately, Mr Davies has said “poor risk management” and “long-standing” challenges were to blame for the failures of Silicon Valley Bank and Credit Suisse. He added that NatWest, by contrast, “has built a robust and resilient balance sheet with strong capital and liquidity, a largely secured retail loan book and well-diversified commercial lending.”

INTERNATIONAL

UBS inflows boosted by Credit Suisse deal

UBS saw $28bn of new money in global wealth management in Q1, with $7bn of the total following its takeover of Credit Suisse. The asset management division also saw $14bn of new money. Despite the inflows, UBS saw profit attributable to shareholders come in at $1.04bn – with this 52% down on the profit seen in Q1 2022. The decline stems largely from a $665m increase in provisions related to US residential mortgage securities litigation. These pushed operating expenses up to $7.2bn from $6.6bn a year ago. CEO Sergio Ermotti said: “Our performance this quarter demonstrates that we continue to be a source of stability for our clients during periods of significant uncertainty.”

Coinbase files legal challenge over crypto rules

Coinbase has filed a petition in an effort to compel the US Securities and Exchange Commission (SEC) to create new rules for digital assets. The cryptocurrency exchange filed a petition for rulemaking with the SEC last year in which it urged the regulator to provide clarity on the circumstances under which a digital asset is a security and create a new market structure framework that is compatible with cryptocurrencies. Coinbase chief legal officer Paul Grewal said that as the SEC has not responded publicly, Coinbase is filing a legal challenge. “Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business," he said in a blog post.

Climate protesters target banks over fossil fuel funding

Climate activists have targeted US banks ahead of their annual shareholders meetings, urging investors to push for actionable climate resolutions and consider the banks’ stance on fossil fuel funding. A recent report from Banking on Climate Chaos, an organisation that tracks bank financing for companies in the fossil fuel industry, found that US banks had loaned over $4.6trn to the fossil fuel industry since 2016. The report says Citi, JPMorgan, Wells Fargo and Bank of America are the worst offenders, contributing a combined $1.3tn to fossil fuel companies by financing their projects.

First Republic Bank withdrawals exceed $100bn

First Republic Bank customers pulled more than $100bn from their accounts in the first three months of the year, with deposits down by more than 40% since the end of December. First Republic's chief financial officer, Neal Holland, said “unprecedented deposit outflows” came amid market uncertainty following the collapses of Silicon Valley Bank and Signature Bank, as well as Credit Suisse’s state-backed rescue by UBS.

Deutsche Bank considers CFO as DWS chairman

Deutsche Bank finance chief James von Moltke could become chairman of the bank's DWS investment arm when Karl von Rohr steps down in October. Sources say Mr Von Moltke could retain his positions as CFO and deputy CEO of Deutsche Bank alongside the DWS role.

Bank and auditor sued for concealing risks

First Republic Bank has been sued by shareholders who accuse the bank of concealing how rising interest rates threatened its business model by prompting an exodus of deposits. They accuse First Republic and its auditor of misrepresenting the strength of the bank's balance sheet and liquidity.

FINANCIAL SERVICES

London retains green finance crown

London has been named the world’s number one centre for green finance, taking top spot for the fourth year running. The City outdid its rivals in most categories on think-tank Z/Yen’s Global Green Finance Index (GGFI). It came out top for its talent pool, built infrastructure and quality of life but fell behind New York in terms of its regulatory environment. While London’s professional services firms and policy environment were deemed to be the most supportive for green finance, New York’s capital markets were thought to be more liquid. New York was named second in the ranking of the world’s leading green financial centres, followed by Stockholm, Geneva and Luxembourg. On the future of green finance, 86% of respondents thought London would improve in the coming years, ahead of New York (84%) and close to the 87% scored by Los Angeles and Amsterdam. Z/Yen Group looked at 150 indicators and surveyed 633 financial professionals to compile the GGFI.

FCA warns over 'serious mismanagement' of trusts

The Financial Conduct Authority (FCA) has urged consumers to seek independent legal and financial advice, warning that it has seen cases of firms "seriously mismanaging" trusts, with unsuitable investments being made by trustees. The FCA said it was possible for trust assets to be inappropriately invested, including into high-risk illiquid assets, which in most cases are not suitable. The City watchdog also said that when consumers invest through a trust, there is a risk that some of the usual protections in place for them are lost.

Jupiter sheds £900m in Q1

Investors pulled £900m from fund manager Jupiter in the first quarter of the year, with market volatility weighing on investors’ appetite for UK and European stocks. Jupiter saw £1bn worth of outflows from its retail and wholesale clients but recorded “positive market movements” of £1.5bn, alongside £100m of positive flows from institutional clients. Jupiter’s assets under management rose by £600m on the previous quarter to £50.8bn.

Greengage launches e-money service

Digital merchant banking platform Greengage has launched an e-money accounts service facilitating payments and cards. The service is targeted at SMEs, high-net-worth individuals, and digital asset firms. The launch follows a poll of nearly 70 prospective clients which found that many entrepreneurs are not satisfied with their current bank account provider, with nearly 65% rating their current account provider 3/5 or less. For customer service, nearly 65% rated their account provider as average or less than average. Simon Jennings, executive director of the UK Cryptoasset Business Council, commented: “Companies involved in cryptoassets face many obstacles when trying to access banking services from major banks.”

LEISURE & HOSPITALITY

Activist investor targets TRG over bosses' pay

Activist shareholder Oasis plans to vote against the pay deal for The Restaurant Group (TRG) chief executive Andy Hornby. The shareholder is urging investors to vote down TRG’s pay policy at its annual meeting, describing it as “unpalatable” that Mr Hornby and other bosses can receive 125% of their base salaries in shares independent of performance. Oasis noted that Mr Hornby “already receives a highly generous base salary." Oasis has almost doubled its stake in the group, which owns Wagamama and Frankie & Benny’s, with its 12.3% stake making it TRG’s second largest shareholder. 

RETAIL

Business bosses urge ministers to restore tax-free shopping

Business bosses from across the retail, hospitality and tourism sectors have called for tax-free shopping for overseas tourists to be reinstated. The corporate leaders have written to the Chancellor, voicing concern that the removal of VAT-free shopping for international visitors is driving tourists away from London and to rival European cities. Research suggests that bringing back tax-free shopping would deliver a £4.1bn boost to GDP and support 78,000 jobs. While the Treasury claims it would cost £2bn in lost taxes, experts estimate there would a net gain to the Exchequer of at least £350m a year.

ECONOMY

Government borrowed less than expected last year

The Government borrowed less than expected last year, with the difference between spending and tax income estimated at £139.2bn in the year to March 31. The amount borrowed last year was equivalent to 5.5% of the value of the UK economy, with this the highest percentage since 2014, excluding the pandemic. However, it comes in lower than the £152bn predicted by the Office for Budget Responsibility (OBR) at March’s Budget. Office for National Statistics (ONS) data shows that the Government borrowed £21.5bn in March, the second-highest March figure since records began in 1993. Public sector debt hit £2.53trn in the financial year to the end of March, with total debt now at 99.6% of GDP. The ONS said public sector net debt at the end of March was £2.53trn - equivalent to around 99.6% of the value of the UK economy. Chancellor Jeremy Hunt said the Government has a "clear plan to get debt falling," adding that he plans to get debt down as a share of GDP within five years' time. Ruth Gregory at Capital Economics said the lower-than-expected level of borrowing for 2022/23 will give the Chancellor "more wiggle room to cut taxes or raise spending ahead of the next general election."

State pension costs set to soar

Department of Work and Pensions (DWP) data shows that the state pension cost an estimated £112.5bn in 2022/23 and is expected to rise to £139.5bn in 2027/28 in real terms. It said that in nominal terms, the estimated increase is more – from £109.7bn in 2022/23 to £147.2bn by 2027/28. In 2022/23, an estimated 12.6m people claimed the state pension and this is expected to rise to 13.1m by 2027/28. The DWP’s benefit expenditure and caseload figures show there were an estimated 1.36m pension credit claimants in 2022/23. This is expected to rise slightly to 1.38m in 2023/24.

OTHER

BoE chief economist: People ‘need to accept’ they’re poorer

Huw Pill, the Bank of England’s chief economist, has said people “need to accept” that they will be “worse off” if inflation is to be tackled. Speaking on the Beyond Unprecedented podcast, he said households had shown a “reluctance to accept” that inflation would lead to a decline in living standards, adding that workers would need to stop asking for pay rises to ensure prices can start falling. Mr Pill said there is a need for people to “stop trying to maintain their real spending power by bidding up prices,” whether through higher wages or passing costs on to customers. He added that there was a “reluctance to accept" that everyone is worse off and "we all have to take our share.”

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