BANKING
Investigation reveals shocking abuse of Covid loan schemes
An investigation by the Times has found that scores of companies supplied with Covid loans were formed after the first pandemic lockdown began, with many of those being “phoenix” companies born from the pre-pack administration of a struggling company. At least £100m was lent to such firms, the paper claims. SMEs were able to borrow up to £5m from banks under the Coronavirus Business Interruption Loan scheme (CBIL). The taxpayer covered interest and fees for a year and guaranteed 80% of each loan. A further £200m was given to companies created by “formation agents” at addresses where no actual business takes place. It is estimated that as much as £17bn of the £47bn the Government spent on bounce-back loans for businesses will never be paid back and about £4.9bn of that is suspected to have been lost to fraud. David Clarke, the former head of fraud for City of London police and former chairman of the Fraud Advisory Panel, said the revelations were “startling”, adding that they “proved there were in effect no protections on the money being sent out”. The paper also reports on growing frustration at the lack of transparency from the Treasury regarding recipients of the Chancellor’s Eat Out to Help Out programme or the Future Fund scheme for technology start-ups, which dished out £1.14bn, while the British Business Bank has held back “borrower-specific data” arguing that increased transparency could lead to greater fraud. Meanwhile, the FT reports that MPs on the Public Accounts Committee found officials had no plans in place to recover debt after lenders have pursued borrowers for up to a year for outstanding loans and called for a strategy for collecting overdue payments.
War and inflation a drag on HSBC profits
HSBC, the first of Britain’s big lenders to release first-quarter results, has revealed its pre-tax profits in the three months to the end of March had fallen to $4.2bn from $5.8bn a year earlier. The bank was hit by a $600m charge to cover expected credit losses from Russia’s invasion of Ukraine and the anticipated impact of broader inflationary pressures on the wider economy. HSBC’s group revenues were down 4% to $12.5bn during the three months, with strict pandemic measures in China and Hong Kong harming its wealth business in Asia. However, rising interest rates have provided a lift at the bank, with net interest income ring to almost $7bn during the quarter, from about $6.8bn a year earlier. The lender’s CEO Noel Quinn said: “Although the economic outlook remains uncertain, the continued upward path of interest rates since our full-year results has further strengthened our confidence in delivering a double-digit return on average tangible equity in 2023.”
Edinburgh private bank income jumps to record level
Edinburgh-based private bank Hampden & Co has unveiled strong growth in loans and deposits. In 2021, Hampden & Co extended its specialist offerings, complementing its new retirement mortgage service with the launch of a self-build mortgage and financing for eco-friendly home and renewable energy initiatives. Demand was most marked in London and the south east of England, accounting for around two thirds of total lending. The bank's traditional Scottish markets also registered strong client and lending growth. In addition, lending via referrals from mortgage intermediaries rose by more than 38%.
Starling doubles valuation and builds ‘war chest for acquisitions’
Starling’s valuation has doubled to more than £2.5bn after the challenger bank raised £130.5m “to build a war chest for acquisitions”. The bank is looking at a number of potential targets, sources said.
BoE official proposes overhaul of global capital rules for banks
Sam Woods, the head of the UK Prudential Regulation Authority, has called for a streamlining of capital requirement rules to make it easier for banks to continue lending in a crisis.
PRIVATE EQUITY
Private equity firms discuss potential buyout of toy maker Mattel
US-based private equity firms Apollo Global and L Catterton have both held talks with toy maker Mattel about a possible buyout of the $7.8bn company.
INTERNATIONAL
UBS trades its way to best profit in 15 years
UBS announced on $2.7bn of profit before tax for the first quarter, up 19% on last year and comfortably ahead of the $2.4bn predicted by analysts. Volatile markets gave traders the opportunity to drive the Swiss bank to its best first-quarter performance since 2007, making up for a lacklustre performance by its wealth managers.
Commerzbank doubles first-quarter profit
Commerzbank's first-quarter profit more than doubled from €133m last year to €284m, even as it increased provisions and writedowns as a result of the Russia-Ukraine conflict. "The economic consequences of the Russian war against Ukraine have impacted on our risk result. We are sticking by our targets for the year as a whole," Chief Executive Manfred Knof said in a statement.
Santander recovery continues
Banco Santander reported a 58% increase in net profits to €2.54bn euros (£2.1bn) in the first three months of 2022. The Spanish bank was boosted by its UK operation, which revealed pre-tax profits of £495m for the quarter, jumping from £175m a year earlier. Mike Regnier, Santander UK chief executive officer, said the company has “continued the momentum” it saw during its pandemic recovery in 2021.
Investors at top US banks refuse to back climate proposals
Environmentalists hoping to apply more pressure to lenders over climate issues were dealt a blow on Tuesday after investors refused to back resolutions filed at Wells Fargo, Bank of America and Citi demanding stricter fossil fuel financing policies.
Bank of Ireland chief quits as pay cap bites
The CEO of Bank of Ireland has announced her resignation in another example of how a cap on executive pay is impacting the banking sector. Francesca McDonagh will be leaving her post in September.
Credit Suisse set to appoint Low as Asia Pacific CEO
Credit Suisse is set to appoint its Asia Pacific investment banking co-head, Edwin Low, as its new chief executive for the region. He will replace veteran banker Helman Sitohang.
CONSTRUCTION
Demand holding, says Taylor Wimpey
The appetite for new homes continues despite rising interest rates, surging inflation and a slowing economy, according to Taylor Wimpey. The developer said sales in the first quarter of this year were in line with the same period in 2021. "Trading has continued to be strong, supported by a healthy market backdrop," said CEO Jennie Daly.
FINANCIAL SERVICES
FCA unable to shield customers from all crypto products
Nikhil Rathi, the Chief Executive of the Financial Conduct Authority, has warned that the global reach of cryptocurrencies has left individual regulators unable to shield consumers from mis-sold investments and dodgy products. He said the FCA cannot protect customers from firms that do not meet the UK’s standards, as they are able to swoop in and reach customers from abroad. Rathi added: “As we have consistently warned, if you invest in crypto, you need to be prepared to lose all your money.” Rathi also announced that Meta, Facebook's parent company, has pledged to change its policy to only permit FCA-registered firms to advertise financial promotions on its sites.
Fidelity allows investors to add bitcoin to retirement savings
Fidelity Investments has become the first leading provider of retirement plans to allow investors to add bitcoin to their savings and investment pots amid growing demand for cryptocurrencies. Fidelity is set to allow savers to allocate up to 20% of their plans to bitcoin, according to a report in the Wall Street Journal. No other cryptocurrencies will be included at first. The Nasdaq-listed software and technology group MicroStrategy is planning to sign up to Fidelity’s new initiative. The company “looks forward to working with Fidelity to become the first public company to offer their employees the option to invest in bitcoin as part of our 401(k) programme,” chairman and chief executive Michael Saylor said.
Schroders overhauls ‘anachronistic’ ownership structure to improve ESG
Schroders has announced that each of the company’s permanent non-voting shares will be converted into an ordinary share carrying voting rights in a move designed to burnish the group’s governance credentials.
City minister seeks to calm fears over job moves to EU after Brexit
John Glen has acknowledged that about 7,000 jobs moved from the Square Mile to the EU after Brexit; but the financial services sector “has not experienced the haemorrhaging” of roles that many had anticipated.
MANUFACTURING
Investors push Nestlé and Kraft Heinz to set new health targets
Food multinationals Nestlé, Danone, Kraft Heinz and Kellogg are being pressured by major investors to set out new disclosures and targets on health after a successful campaign for changes at Unilever.
RETAIL
Inflation starting to pose a problem for people on “good wages”
A new study by Kantar reveals that food prices are 5.9% higher than they were a year ago, marking the sharpest increase since December 2011. The figures indicate that the average yearly food bill could increase by £271. The rising prices are impacting sales, with supermarkets witnessing a 4.1% fall in grocery sales in the last four weeks while online grocery sales have fallen by 15% compared with last year.
ECONOMY
Government borrowing halves as economy rebounds
Government borrowing more than halved from the £317.6bn in 2020-21 to £151.8bn in the last financial year. The figure is well above the £127.8bn forecast by the Office for Budget Responsibility (OBR) last month, driven up by 30-year high levels of inflation. Interest payments on debt more than doubled last year from £30.5bn to £69.9bn. Borrowing in March came in at £18.1bn, the second-highest amount for the month since records began in 1993, but £8.8bn less than the amount borrowed in March 2021. The Office for National Statistics said the Government received much stronger than expected revenues from taxes, with receipts coming in at £619.9bn, an increase of £94.3bn. In response to the data, the OBR said the strength in revenues was “broad based with all the major taxes recovering strongly” and the improvement had continued even as the wider economic recovery took a hit from higher energy prices. Chancellor Rishi Sunak said: “Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which mean we must manage public finances sustainably to avoid saddling future generations with further debt.”