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Daily News Roundup: Wednesday, 29th April 2020

Posted: 29th April 2020

BANKING

HSBC loan loss provisions could grow as pandemic continues

HSBC has said loan loss provisions could increase to between $7bn to $11bn for full year 2020, with CFO Ewen Stevenson noting: “It’s very much premised on views on how long and how severe the economic impact is of COVID-19, and really the shape of the recovery that we see.” Meanwhile, the bank put its redundancy programme on hold as it focuses on helping staff during the coronavirus crisis but said profits almost halved, with bad debts potentially hitting $11bn this year as customers struggle to repay their loans. Chief executive Noel Quinn commented: "I take the wellbeing of our people extremely seriously. We have therefore paused the vast majority of redundancies related to the transformation we announced in February to reduce the uncertainty they are feeling at this difficult time.” Quinn also defended the bank’s loan record to firms affected by the coronavirus pandemic saying HSBC had lent $600m in CBILS loans to 4300 customers, noting: "And there is still more to come. We are working through the applications.”

Banks agree mortgage payment holidays with homeowners

Some 1.6m mortgage payment holidays have been granted to homeowners amid the ongoing coronavirus outbreak, after Chancellor Rishi Sunak announced last month that such arrangements would be made available. Stephen Jones, chief executive of UK Finance, commented: “The industry has acted quickly to support homeowners through this crisis and has taken decisive steps to ensure that eligible customers on payment holidays due to COVID-19 can opt for the security of fixing their monthly mortgage payments going forward.” The industry has also announced additional help for those homeowners on payment holidays or who have been furloughed.

Banks fear mass fraud with “bounce back” loans

Senior bankers have warned that Rishi Sunak’s new “bounce back” lending scheme for small businesses may not begin on Monday as planned because of legal problems and the need to create new digital systems. The scheme offers 100% government-backed loans of up to £50,000 to micro businesses. But bankers fear the simplified application process, which also lifts obligations on lenders to carry out their own checks, risks a huge rise in fraud and makes it difficult to call in loans in future. Banks also say the scheme will require changes to the Consumer Credit Act, particularly over its stipulation that courts can rule a relationship between lender and borrower unfair, and these changes will not be in place for Monday.

TheCityUK chief defends banks’ loan responses

Miles Celic, chief executive of banking industry group TheCityUK, has said lenders are doing “their level best” to address demand for loans, after Chancellor Rishi Sunak announced changes to the Coronavirus Business Interruption Loan Scheme (CBILS). HSBC, NatWest, Lloyds and other lenders have all committed to loosening requirements small businesses must provide in their CBILS applications. However, the British Chambers of Commerce’s latest business impact tracker shows just 13% of those businesses that applied for the CBILS have succeeded.

FCA warns banks against pressuring companies for extra fees

The Financial Conduct Authority has warned lenders not to abuse their relationships with clients to pressure firms seeking debt finance into paying unnecessary fees for share issues. The FCA said: "Tying clients to take additional services, or demanding fees for services not provided, is not in the best interests of those clients, distorts competition, undermines market confidence and calls into question firms' and individuals' integrity."

PRIVATE EQUITY

Bridgepoint sets up £3m coronavirus charity fund

Bridgepoint Capital has launched a £3m hardship fund to support charities and communities affected by COVID-19. The private equity firm’s directors have contributed a fifth of their annual salaries to the fund, a move that prompted “significant contributions” from other employees.

INTERNATIONAL

UBS reports profits up 40%

UBS has cautioned that key profit drivers will be affected by the ongoing coronavirus outbreak. Chief executive Sergio Ermotti commented: “The likelihood is high that the stress will be as severe or more severe than the 2008 crisis.” This comes as the bank reported a 40% increase in net profits to $1.6bn, with its wealth management business and investment bank standing strong amidst market disruption in March. Anke Reingen, analyst at RBC Capital Markets, remarked: “Revenues were much stronger and across more divisions than we expected, but a cautious outlook statement and the decline in the [core equity tier one capital ratio] dampen the excitement somewhat.”

Santander sees first quarter profit fall 82%

Santander has posted an 82% year-on-year fall in quarterly net profit to €331m (£288.5m), as the lender booked higher provisions for expected credit losses from the coronavirus crisis. Chairman Ana Botin said in a statement “We will review our strategic targets once we have a more complete understanding of the full impact of the crisis.”

EU grants banks capital relief to fund €450bn lending boost

Eurozone banks have been offered temporary capital relief that the EU said could boost lending by as much as €450bn, as regulations introduced after the 2008 financial crash are eased.

Warren, Ocasio-Cortez propose M&A ban during crisis

Two democrats are seeking to ban the acquisition by corporates of smaller businesses with their Pandemic Anti-Monopoly Act, which will also block deals by companies backed by private equity and hedge funds.

AUTOMOTIVE

Ford shares fall after $5bn quarterly loss

Shares in Ford Motor Co. fell as much as 7.4% yesterday after the automaker forecast a £5bn second quarter loss – about $2bn worse than expected. Ford posted a net loss for Q1 at $2bn. CFO Tim Stone said the company remained “well positioned to not only invest in our customer initiatives, our products, our technology initiatives but also to navigate through these circumstances, even if production doesn’t resume”.

AVIATION

BA cuts 12,000 jobs while Lufthansa considers bankruptcy option

British Airways is set to cut up to 12,000 jobs from its 42,000-strong workforce due to a collapse in business because of the coronavirus pandemic. Parent company IAG said it needed to impose a "restructuring and redundancy programme" until demand for air travel returns to 2019 levels. The move comes as Lufthansa prepares to file for bankruptcy in a bid to protect itself from creditors for three months; SAS announces 5,000 job losses and Norwegian prepares for a crunch vote on a debt-for-equity swap as the first part of a process that will allow it to access nearly £230m in aid.

FINANCIAL SERVICES

Fintech boss says coronavirus is exposing cracks in banking tech

The boss of R3, the fintech firm which develops blockchain software, believes traditional banks have revealed weakness in their tech systems during the coronavirus crisis. David Rutter says the pandemic could accelerate the deployment of new technology to speed up applications for lending. He goes on to say that when COVID-19 blows over, innovation in the banking sector will originate out of London, whose expanding fintech sector is “unbelievably positive for the UK”.

Plus500 looking good in volatile times

Financial betting group Plus500 has reported a strong performance thanks to the high levels of market volatility. Revenue and profitability for the full year would be substantially higher than analysts’ forecasts, the firm said, sending shares up 2% to £12.64.

HEALTHCARE

Virus boosts Pfizer’s sales

Pfizer has reported a $150m rise in first-quarter sales driven by strong demand for its pneumonia vaccines, anti-infectives and other treatments for COVID-19. First-quarter profit fell to $3.4bn from $3.9bn a year ago.

LEISURE & HOSPITALITY

Banks refusing to provide holiday refunds

Banks are reportedly rebuffing attempts by thwarted holidaymakers to secure credit card refunds for their trips arguing they are not eligible or should exhaust all other avenues first. The Financial Ombudsman Service said: “We recognise this is an unprecedented situation but there is no reason not to process these claims as usual.”

RETAIL

Garden centres and other businesses given route back to trading

Garden centres and other non-essential retailers have been told they can reopen from Wednesday as long as customers can order goods online or over the phone and pick up their purchases using a click and collect service. Providing garden centres maintain social distancing measures they will be among the first businesses allowed to reopen fully when lockdown measures are eased, the Telegraph reports.

Two-fifths of UK retailers ceased trading entirely

The CBI’s latest distributive trades survey has found that 39% of retailers reported a total shutdown of UK activity due to the coronavirus outbreak. April's monthly health check of high street and online sales also revealed that activity was down for 71% of businesses, 67% said the outbreak was having a significant negative impact on their sales, while 96% said they were now experiencing cashflow problems.

John Lewis plans store closures while M&S scraps dividend

John Lewis is drawing up plans for permanent store closures with sources saying it is "highly unlikely" all 50 sites will continue to trade. Elsewhere, Marks & Spencer has issued an update stating that it has waived next year's dividend, secured a relaxation of its banking terms and accessed a government funding scheme.

ECONOMY

Thinktank warns on economic effects of pandemic

The National Institute of Economic and Social Research (NIESR) has warned that the UK economy is likely to miss out on some £800bn in income over the next decade as a result of the coronavirus lockdown and subsequent job losses. The thinktank issued a report stating: “The government’s announced measures to limit the long-term economic effect of COVID-19 have a direct cost to the exchequer of about £75bn in our main-case scenario. Borrowing is likely to rise above £200bn in 2020-21.”

Germany and eurozone braced for record slump

Germany’s economy is set for a 6.6% slide in growth this year and the country’s Ifo economic institute warned that the economy would not return to pre-pandemic levels until the end of 2021. Meanwhile, UBS believes the eurozone’s economy will contract by 6.1% in 2020, worse than the 4.5% seen during the financial crisis. Standard & Poor's has a worse forecast predicting a 7.3% slump and that both the UK and eurozone economies will remain 1.4% below pre-pandemic levels by 2023. Separately, Fitch has cut Italy's credit rating to "BBB-minus" just one notch above junk. Italian finance minister Roberto Gualtieri said the ratings agency had failed to take account of important decisions taken by the EU and the ECB to support eurozone economies.

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