PRA chief: Bankers’ bonuses didn’t work
The head of the Prudential Regulation Authority (PRA) said on Tuesday that the bankers’ bonus cap did nothing to reduce banker’s total take home pay, instead it only served to force up the fixed pay of bankers. Sam Woods defended the Government’s push to scrap the cap, saying although the move was unpopular, it could actually lower the total rate of bankers’ pay. Speaking with MPs on the Edinburgh Reforms – a package of over 30 reforms designed to free-up the UK’s financial services sector after Brexit and boost growth, Mr Woods also said banks are unlikely to need an additional capital buffer to cover any fallout from climate change, given the lengthy time frame involved, and interpreting the level of risk to life insurance companies from reforms to Solvency II was a matter of “perspective”. Referring to Bank of England governor Andrew Bailey’s statement that such risk would increase by 20%, from 0.5% to 0.6%, Woods admitted that it could be seen as “a change from one relatively small number to another relatively small number”. Finally, Vicky Saporta, executive director at the Bank, told the Treasury committee that Brexit provides the UK with an opportunity to tailor City rules to better facilitate competition and provides London with more flexibility than a harmonised [EU] system.
Fitch: UK facing biggest risk of mortgage arrears in developed world
UK banks are more exposed to the housing market than in any major developed country, according to Fitch Ratings, who predict the share of homeowners missing more than three months of mortgage payments will double in 2023 to 1.5% as high rates hit borrowers. Based on the current number of residential mortgages in the UK, this means 135,000 households will be in arrears. Fitch has forecast that the Bank of England will raise the Bank Rate to a peak of 4.75% in May this year. Jessica Hinds, director of economics at Fitch, explains: “[The UK] have seen much bigger increases in mortgage rates, the Bank of England started tightening much earlier, and we have shorter mortgage terms than in other countries.”
Revolut a key target of fraudsters
British-based fintech Revolut is second only to Barclays in the number of complaints customers make about scams, despite it having far fewer customers. The number of crime reports made to scam reporting body Action Fraud ballooned to 7,198 last year, up 81% from 3,975 in 2021. This year, the trend is up, with 573 crime reports in January alone. Fraud investigators say that criminals are taking advantage of the simplicity of moving money in and out of Revolut and the speed of setting up an account.
Account switching worthwhile again
Anna Bowes, of comparison site Savings Champion, suggests savers could soon start account switching again as interest rates gradually edge up after banks were chided for failing to pass on rising rates to savers. Ms Bowes said: “When the cost of living is rising so much, it’s more important than ever to earn more money on your savings. Hopefully, we are at a tipping point now where people are realising that they shouldn’t let the banks take their interest.”
Private credit edges out banks to offer Carlyle largest direct loan of its kind
Private credit providers including Apollo, Ares and Blackstone are looking to outbid major investment banks to fund Carlyle’s acquisition of a 50% stake in healthcare analytics company Cotiviti. The $5.5bn financing would be the largest direct loan on record. “No longer is the large deal just the provenance of the banks,” said Kipp deVeer, head of credit at Ares. Tougher capital requirements for banks and recent volatility, which left banks struggling to offload debt they provided to fund big takeovers, has left a gap for non-bank lenders.
EBA demands adherence to gender diversity rules
The European Banking Authority (EBA) has called for a crackdown on lenders flouting the gender diversity rules it introduced in 2014. The EBA said that more than 25% of nearly 800 European banks and investment companies it reviewed were ignoring diversity policies, including setting targets to increase female representation in leadership positions. Data collected at the end of 2021 showed that women account for only 18% of executive and 28% of non-executive directors. Women earned on average 9.5% less than male executive directors, and 6% less than male non-executive directors.
Hunt’s tax policies will make flights dearer
A coalition of airlines urging the Chancellor not to increase air passenger duty (APD) in line with the retail prices index (RPI) next month arguing that the move will result in passengers paying higher air fares. British Airways, Virgin Atlantic, Ryanair and easyJet are among the airlines to have written to Jeremy Hunt. In their letter to the Chancellor, airline chiefs said: “The Government has already acted to protect travellers by capping rail fares some 6.4% lower than RPI, and by capping bus fares and by freezing fuel duty. Air passengers warrant similar protection.”
Ashtead sticks with London listing despite surging US business
Ashtead, the construction equipment rental group, has promised to keep its stock market listing in London despite its US operations being a key driver for an uprated full-year profit forecast.
Fewer women work in finance now than in 1997
A report from the Centre of Economic & Business Research (CEBR) on behalf of the London Stock Exchange (LSE) shows the proportion of women working in finance has steadily decreased since the mid-1990s. In 1997 there were around 589,000 women working in the UK finance sector, but 26 years later that number has fallen by more than 30% to just over 400,000. Julia Hoggett, the chief executive of the LSE, explained that a much larger proportion of women worked in administration and clerical roles in the 1990s. “Some of those roles were made redundant as a result of digitisation over the years,” she added. “But I have seen data that suggests, say in investment banking, there are occasions where women will disproportionately lose roles more regularly than men.”
City groups praise ‘world leading’ transition plans
UK Finance has welcomed proposals to make a standardised framework for assessing climate transition plans, arguing that they could propel the UK to becoming a world-leader in environmental regulation. The Transition Plan Taskforce (TPT) - launched by the Treasury last April – is working on a disclosure framework that would minimise international differences, which it is expected to publish in the summer or autumn of 2023. TheCityUK also said it endorses the aim to “maximise international alignment” when developing the TPT disclosure framework. Emma Reynolds, managing director at the body, said stakeholders will need to “work together to maximise the impact of its work.”
Beazley miscalculates performance
Beazley has been forced to issue a correction to the stock market after an FT blogger found errors in the insurer’s accounts. The Lloyd’s of London firm had used the wrong number of shares to calculate its net assets per share, one of the financial performance criteria used to determine the size of bonuses, while long-term incentive awards are “wholly based on growth in net asset value per share”. Beazley said its accounts would be updated “as soon as practicable” and that “executive director payments will be made on the correct basis.”
N26’s top executives warned co-founders over ‘dysfunctional’ leadership
Top executives at German fintech N26 accused the co-founders in February last year of promoting a “culture of fear” leading to organisational dysfunctionalities that threatened to drive the group into a “downward spiral”, according to a memo seen by German media. N26 declined to comment on “any internal conversations, emails or other internal information” but stressed that it has made “significant investments into governance and leadership” over the past 18 months.
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AstraZeneca doubled exports to Russia after invasion of Ukraine
AstraZeneca nearly doubled its exports of chemicals to Russia after Moscow began its special military operation in Ukraine, according to Swedish media. The Anglo-Swedish drugs giant still runs a factory in Kaluga in Russia, south-west of the capital, which is now a key part of Astra’s global supply chain.
Rising costs hit profits at Dyson
The engineering group Dyson grew revenues to £6.5bn in 2022, up from £6bn in the previous year. However, a surge in costs saw profit fall from £1.5bn to £1.3bn. Roland Krueger, the company’s chief executive, said: “This was one of the toughest years that Dyson has faced but thanks to some exceptional efforts from individuals we navigated it, while the fact we stepped up investment in the development of cutting-edge new technologies means we are well positioned for 2023 and our ambitious plans beyond.”
MEDIA & ENTERTAINMENT
Reach publishes first AI-authored articles as revenue falls
The owner of the Daily Mirror and Daily Express newspapers has deployed an AI system to write articles on its local news sites, its chief executive Jim Mullen has revealed. Reach has published two articles authored using Scribe on its hyperlocal news and information site, In Your Area, as part of a test that could be expanded. Mr Mullen explained: “There isn’t any large-scale plan to remove editorial costs through AI, it’s there to support editorial.” Reach said on Tuesday that total revenue declined 2.3% to £601.4m, and operating profits dropped by 27.4% to £106.1m. The company’s share price tumbled as much as 12% on the news.
House prices hold up
The latest report on UK house prices from the Halifax has calmed fears of a steep plunge in values, showing annual growth of 2.1% in February compared with the same month last year. Prices rose 1.1% between January and February, an improvement on the prediction of about 0.3% economists had made. “Recent reductions in mortgage rates, improving consumer confidence, and a continuing resilience in the labour market are arguably helping to stabilise prices following the falls seen in November and December,” Kim Kinnaird, director of Halifax Mortgages, said.
CVC Capital teams up with WTA
CVC Capital Partners, the private equity group, will be the Women's Tennis Association's (WTA) commercial partner and invest in the sport with a 20% stake in the women's tennis governing body, the WTA said on Tuesday.
Powell: Fed is prepared to return to bigger interest rate rises
Jerome Powell, chairman of the US Federal Reserve, said on Tuesday that a stronger US economy meant it may be forced to raise interest rates higher than expected. The Fed chair’s remarks prompted a stock market sell-off, with the S&P 500 closing 1.5% lower in New York while the Nasdaq fell 1.25%. Traders revised their bets on future rate rises, pricing in a rate hike of 0.5 percentage points in March, up 0.25 percentage points earlier in the day. The two-year Treasury yield rose to its highest level since 2007, at 5%. Sterling dropped by as much as 1.5% against the dollar to below $1.19.
"Dr Doom” predicts massive financial crisis
Nobel Prize winning economist Professor Nouriel Roubini has warned that even if the US Federal Reserve lifted interest rates to 5.5% it would not be enough to get inflation under control. The Fed would have to go well above 6%, he said, causing a hard landing and significant distress in equity, bond and credit markets. "We're facing the perfect storm: inflation, stagflation, recession, and a potential debt crisis," Roubini told Australia's ABC. However, Nouriel is known as “Dr Doom” for his grim view on where the world is heading.
Forgotten assets to counter cost of living crisis
The Government has committed £76m of assets from forgotten bank and building society accounts to go towards tackling the cost of living crisis as it seeks to unlock over £800m for community funding over the next few years. The Department for Culture, Media and Sport confirmed that an initial £76m will be distributed to 69,000 people under the Dormant Asset Scheme.