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Daily News Roundup: Wednesday, 3rd August 2022

Posted: 3rd August 2022

BANKING

FCA: Banker remuneration should reflect economic pressures and ESG

The Financial Conduct Authority (FCA) says the cost of living crisis, meeting climate targets and improving diversity should be reflected in how banks determine pay and bonuses. In a letter to chairs of banks’ remuneration committees, the regulator said: “Your role is key in ensuring that your firm's remuneration policies support the purpose, long-term strategy and values of your firm, while reflecting the current economic environment.” Firms have been told to offer details of how they will “take into account the impact of the current economic environment on bonus pools and individual outcomes.” The FCA also asked banks to provide details of how their ESG commitments are linked to remuneration policy, saying: “We believe that linking progress against these commitments to a measurable proportion of pay could be effective in encouraging individuals to take accountability for change.”

Thousands of small firms go bust with bounce back loan debt

A BBC investigation has found that more than 16,000 businesses which took out bounce back loans have gone bust without paying the money back. Analysis suggests the cost to the taxpayer of these insolvencies could be as much as £500m. As part of Government efforts to support businesses through the pandemic, 1.5m loans worth a combined £47bn were handed out, with the money supposed to be paid back within 10 years. With the scheme accelerated to protect the economy, checks on borrowers were limited and firms applying for loans up to £50,000 depending on their turnover were allowed to "self-certify" the figures. Sir David Green QC, chairman of the Fraud Advisory Panel, said the checks banks were required to do on bounce back loan applicants were "hopelessly inadequate.” Ministers have tasked several agencies with investigating Covid loans and getting back the money, including the Insolvency Service and National Investigation Service.

HSBC backs structure amid break up calls

HSBC chairman Mark Tucker has pushed back against calls for the bank to split its operations, telling a shareholder meeting in Hong Kong that the best structure is its existing one. Chinese insurer Ping An, an HSBC shareholder, wants to hive off HSBC's western operations and keep it as an Asia-focused bank, while a number of HSBC’s small Hong Kong shareholders have been angered by cuts to the bank’s dividend in recent years. Mr Tucker said it would be a "hugely complex exercise” to break-up the business, and while he said the board was examining “alternative structures”, he added: “Our belief has been that the best strategy is to continue with positive momentum we currently have and not risk a major structural change".

Virgin Money sees jump in accounts and lending

Virgin Money saw a 45% year-on-year rise in personal and business accounts in the three months to the end of June. The bank also recorded a 3.8% rise in unsecured lending to £6bn while business lending remained stable at £8.3bn. Chief executive David Duffy said the firm had “another positive quarter, financially and strategically” as it grew its balance sheet across “all target areas.” However, he warned of the impact of a coming slowdown on the firm's customer base, saying: “Looking out into an uncertain economic environment, while our asset quality remains resilient and customers aren't yet showing signs of financial stress, we are helping our customers and colleagues navigate what will be a more difficult period for many.”

PRIVATE EQUITY

KKR posts £677m loss

Private equity firm KKR recorded a loss of £677m for the second quarter. The firm saw a 7% fall in the value of its private equity holdings, while its fee-related earnings were down 2% year-on-year to £377m. Earnings were down 9% year-on-year to £687.7m. KKR said the “volatility” of Russia's war in Ukraine and rising interest rates drove a fall in transaction fee income.

INTERNATIONAL

RBA ups rate by 50 basis points to 1.85%

The Reserve Bank of Australia has lifted its key interest rate for a fourth straight month, increasing the cash rate by 50 basis points to 1.85%. This is its highest level in over six years.

FINANCIAL SERVICES

Fintech industry body warns of ‘regulatory limbo’

Fintech industry body Innovate Finance has warned that the Financial Conduct Authority’s (FCA) crackdown on marketing of high-risk investments to consumers will leave crypto firms in “regulatory limbo.” The City watchdog has set out new rules to deal with “misleading” ads that encourage investment in risky products and tighter requirements for companies doing so. However, this does not cover crypto as it falls outside the FCA’s remit, with the regulator saying it will set final rules for cryptoasset promotions once the relevant legislation is in place. Innovate Finance director of policy Adam Jackson said: “The combination of FCA’s proposals with the existing wider regulatory framework set by HM Treasury means that crypto asset service providers would face a regulatory limbo, unable to get approval for compliant promotions and therefore unable to market themselves in the UK.”

PROFESSIONAL SERVICES

Business bodies to seal post-Brexit mutual recognition deals

The Government is set to pay business bodies to broker deals in foreign countries to allow City workers to more easily work overseas post-Brexit. The new Recognition Arrangements Grants Programme will see payments of up to £75,000 given to professional bodies and regulators to pursue mutual recognition of qualifications deals. With the UK losing its wide-ranging access to EU financial markets post-Brexit, ministers want sector bodies for industries such as accounting and legal services to further overseas access for UK firms by brokering mutual recognition of professional qualification deals with their equivalent overseas bodies.

REAL ESTATE

House prices up 11% year-on-year in July

Property prices in the UK have hit an average of £271,209, according to data from Nationwide. Prices were up 11% year-on-year in July, exceeding the 10.7% annual growth recorded in June. The increase means values have risen for 12 consecutive months. Month-on-month, prices climbed 0.1% last month, with this the smallest level of growth in a year. First-timer buyer mortgage completions remain around 5% above pre-pandemic levels, according to the Nationwide, despite the rising affordability pressures caused by the cost of living crisis. Reflecting on the figures, Nationwide’s chief economist Robert Gardner said: “While there are tentative signs of a slowdown in activity, with a dip in the number of mortgage approvals for house purchases in June, this has yet to feed through to price growth.”

Rightmove's profits and revenue up

Rightmove saw its revenue and profits increase in the first half of the year. The UK's largest online property platform took in £162.7m in sales over the six months to June 30, with this up 9% on 2021. Rightmove said it has seen little reduction in sales activity and demand despite growing economic uncertainty. The platform saw its operating profits jump by 6% to total £121.3m.

Shareholder calls for Purplebricks chair to be removed

Shareholder Lecram Holdings has called for Purplebricks chairman Paul Pindar to leave his role following disappointing annual results. Lecram, which holds a 4.2% stake in the estate agency, has called for action after Purplebricks registered a loss of £42m in the financial year to April, down from a £6.8m profit in 2021, while its group revenue was down 23% to £70m and its gross profit fell 27%. Glenn Cooper, chair of Harrier Capital - which advises on Lecram’s Purplebricks stake, described the results as “dreadful.”

RETAIL

Sales increase at Greggs

Greggs has reported that its sales rose by 27.1% in the first half of the year as customers turned to cheaper meals during the cost of living crisis. Sales in H1 hit £694.5m compared to £546.2m a year earlier, but profits remained flat at £55.8m compared to £55.5m last year, with the reintroduction of business rates, increased VAT and inflation having an impact. Greggs says customers could face price rises after warning that its costs would rise by 9% this year. 

JD Sports names new CEO

JD Sports has named former B&Q executive Regis Schultz as its next CEO. Mr Schultz is currently head of retail at the Dubai-based conglomerate Al-Futtaim Group. JD chairman Andrew Higginson said that the board had conducted “a truly global search” and called Mr Schultz “a retailer through and through”, adding that his international experience would be “very important”.

SPORT

Lloyds warns of ticket scams

Lloyds Bank says there has been a surge in football ticket scams ahead of the start of the new season, with cases rising by 68% between January and June this year compared to July to December 2021. The analysis shows that victims each lost £410 on average. The increase has been attributed in part to fraudsters taking advantage of people desperate to attend live events after pandemic-related restrictions ended. The report also reveals that fraudulent sales for concert tickets have gone up by 72% so far this year.

ECONOMY

Experts weigh rate rise options

With the Bank of England set to make its latest decision on interest rates this week, City AM asks a selection of financial services professionals what they believe the Bank should do. Adrian Murphy, CEO of wealth manager Murphy Wealth, says the Bank has “the unenviable task of taming inflation through interest rate rises, without choking off the fragile growth in the UK economy.” He says it “isn’t a bad thing” that the UK is likely to follow the US in taking action against rampant inflation. Imran Hussain, director at Harmony Financial Services, says rate-setters have little option but to increase rates but warns that “rate rises in themselves won’t be enough in the battle against rampaging inflation so there will have to be government intervention, too.” Lewis Shaw, founder of Shaw Financial Services, suggests that if the Bank does not increase rates, “there’s a risk politicians will scapegoat them for further adding to the current inflationary problems.” Samuel Mather-Holgate of Mather and Murray Financial says raising rates “isn’t going to combat inflation that we import in terms of the global oil price or commodity prices,” while Rob Peters, director of Simple Fast Mortgage, argues: “While the Bank of England’s remit is clear, namely to ‘control inflation’, they simply don’t have the right tools for the job.”

'Astronomical' inflation on the way, think-tank warns

The National Institute of Economic and Social Research (NIESR) has warned that inflation will soar to "astronomical" levels over the next year, forcing the Bank of England to raise interest rates higher and for longer than previously expected. The think-tank said gas price rises and the rising cost of food will send inflation to 11% before the end of the year while the retail prices index is expected to hit 17.7%. The NIESR said it expects the Bank of England to keep increasing interest rates until they reach 3% and then keep them in place for longer than previously expected to bring inflation down to 3% by the end of 2023. 

OTHER

Women see smaller average pensions in every industry

Women's pensions fall short of men's in every job sector in the UK as they reach retirement, according to analysis from Legal and General. The average pension fund of women aged 55-plus is £12,000, less than half the size of men's which average £26,000.  These totals only include pots held by work scheme members, not other private or state pensions. Across the sectors, the biggest gap is in healthcare, where men see average pension pots 59% bigger than those held by women. The report says: “There are many reasons for the gender pensions gap, ranging from women holding fewer senior positions and being paid less, resulting in lower pensions contributions, to the fact they are more likely to take career breaks due to caring responsibilities.”

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