Government to set out plans for selling bank shares
The FT (£, p1) speculates that Chancellor George Osborne could set out his plan to sell off the Government’s stake in RBS in next week’s Mansion House speech. The paper states that RBS is “gearing up for a share sale by inviting banks to pitch for an enlarged corporate broking role that includes acting as privatisation advisers”. The article suggests that a sale could commence in the fourth quarter of this year. In addition, HM Treasury announced yesterday that it will extend the drip-feeding of Lloyds shares until the end of the year (Times, £, p39). The Government also committed to selling a portion of its stake – which has now fallen to 19% – to individual investors within the next 12 months. A retail offering would come with a 5% discount. However, CityAM (p1) reports that UK Financial Investments is against such a sale due to the reduction in revenue for the Treasury.
New Economics Foundation: “Banking reform is serious unfinished business”
A report published by the think tank New Economics Foundation suggests that the UK’s financial system “remains at risk of upheaval” despite the regulatory changes undertaken since 2007, and places the strength of the UK’s financial system fifth out of the G7 bloc (Guardian online). The report calls for more competition in the banking sector, full separation of investment and retail arms and an increase in peer-to-peer lending. The article quotes the BBA’s response to the report: “The UK authorities are rightly regarded as being at the forefront in implementing new European rules that will ensure investors in banks – and not taxpayers – bear the cost of any future bank failure.”
BSB looks at professional certification for bankers
In an interview in the Independent (p16), Dame Colette Bowe, the head of the new Banking Standards Board, suggests that the organisation might consider introducing professional certification into the banking industry. She says: “I think it is perfectly possible to establish a more widely accepted concept of professionalism in banking while acknowledging that people in different parts of the industry do different things. It is going to be an early area of focus for us. What it boils down to is not just having a business card that has got some letters on it, but actually knowing the person you are dealing with has a high standard of professional training.”
CBI: UK growth has “cranked up several gears”
Growth in the UK economy has “cranked up several gears” according to the CBI. Its survey of more than 800 companies found very good growth in the services sector which recorded its fastest growth in business volumes since February 2006 (BBC). Saturday’s Express (p2) reported on the BBA’s figures which showed that businesses and consumers have started borrowing more as confidence improves across the UK economy. However, the Guardian (p16) reports that the EEF has cut its growth forecasts for the manufacturing sector, which has been dragged down by a slowdown in the North Sea oil and gas investment.
The latest “Bank on Your People” survey provides a snapshot of wellbeing in banks. Paul Barrett, Head of Wellbeing at the Bank Workers Charity, discusses the survey’s findings and what they say about employee wellbeing in the financial sector.
Investors highlight cost of regulation
Banks are coming under increasing pressure to control the soaring cost of compliance and regulation, the FT writes (£, p16). The paper says some banks are paying up to $4 billion a year to cover the cost of checks to prevent money laundering and giving more data to regulators for stress tests, but bankers say their ability to reduce compliance costs is severely constrained. One investor is quoted saying: “All I see are cases where compliance costs are going up, and that is a massive challenge for these banks. Every time I see the management teams, it is the first thing I raise with them.”
Patrick Lemmens, a senior portfolio manager at asset manager Robeco, adds: “There is a very clear risk banks will overspend,” adding that it is difficult to know what makes up banks’ regulatory and compliance spending. However, Justin Bisseker, a banking analyst at Schroders, is quoted saying: “Knowing the amount would not tell me if it was being spent well”, and he believes it is “very dangerous” to benchmark banks given their different structures and needs.
Lending to businesses up
The Telegraph (B1) says net lending by banks to small businesses under the Funding for Lending Scheme grew by £635 million in the first three months of 2015. The paper quotes the Bank of England saying: “The improvement in corporate credit conditions in part reflects the significant fall in bank funding costs that has occurred since the launch of the FLS.” Separate figures released by the BBA yesterday showed that net borrowing by businesses has been positive in three of the last four months. The FT (£, p3) adds that says the news was welcomed by economists, and quotes Howard Archer, chief economist at IHS Economics saying: “The BBA data also shows there is a pick-up to lending to businesses, and that is certainly encouraging. It suggests that businesses are looking in decent shape and are becoming more ready to invest – that is obviously important for balanced growth.”
Wheatley discusses plans for banks’ management
Financial Conduct Authority Chief Executive MartinWheatleyyesterday denied he wants to go “scalp hunting” as he discussed plans for the regulator’s new “Certification Regime”, which will make the managers of failed banks prove they took reasonable steps to mitigate risk (City AM, p5). Speaking at a conference on restoring trust in financial services, Mr Wheatley said it is “common sense” to make managers admit to which departments they have been responsible for. The FT (£, p4) adds that the FCA is replacing the new regime – which will replace the existing Approved Persons Regime – will place clearer expectations on firms to support propriety standards for anyone in a so-called “significant harm function”.
British businesses and consumers put their foot on the gas
The BBA’s latest High Street Banking statistics out this morning show an increase in business borrowing, mortgage approvals and unsecured borrowing. Commenting, BBA Chief Economist Richard Woolhouse said: “British businesses and consumers have started to put their foot on the gas. There appears to be broad confidence about the economy, which the banks are supporting through affordable credit, leading to rises in borrowing across the board. Business lending has risen in three of the first four months this year indicating that we might have reached a turning point. There was a significant pre-election jump in mortgage approvals which we would expect to continue in the coming months. There was a sharp rise in the amount savers deposited in their bank accounts and also in the amount people are borrowing through personal loans and credit cards. This suggests that consumer spending will continue to drive the British economy forwards.”
The key findings were that: net borrowing by businesses has been positive in three of the last four months; house purchase approvals were higher than last month and 3% higher than in April 2014; deposits with high street banks strengthened in April; and unsecured borrowing is growing at its highest annual rate, of 4.9%, since autumn 2010, reflecting strong consumer confidence.
PRA sets out next steps on ringfencing
The Prudential Regulation Authority yesterday published a policy statement on implementing the ringfencing of retail banking operations from investment banking. CityAM (p7) reports it as the Bank of England “holding firm” on the proposals and rejecting calls for the legislation to be watered down. The article states that: “Banks were not surprised by the document, and one critical banking insider noted: “It just sets out how hideously complicated it all is.” But industry body the British Bankers’ Association (BBA) welcomed the publication as “a significant step towards the completion of the regulatory regime”.
“The policy statement is granular in nature and clears up a good number of potential ambiguities and gaps in understanding of the planned new arrangements in the areas covered,” wrote the BBA’s Paul Chisnall. “There is only so far banks can go, however, before they have full sight of the regulatory regime.”
Read Paul Chisnall’s full views on the policy statement on the BBA website here.
Cameron hopes for “extra quick” EU referendum
Prime Minister David Cameron yesterday welcomed the fact that an EU referendum bill would have all party support and said that he looked forward “to seeing it make its way through both houses in extra quick time”. The proposed question in the referendum will be: “Should the United Kingdom remain a member of the European Union?” (Independent, p15) In the Telegraph (p20) James Kirkup predicts that the House of Lords could hold up the passage of the bill, warning: “their scrutiny can delay it until a quick vote in 2016 is impossible, a potentially serious problem for a Prime Minister who currently calculates that an early vote is the best way to achieve his preferred result of a vote to stay in.”
EU puts common consolidated corporate tax base back on the agenda
The EU has relaunched plans for a common consolidated corporate tax base across Europe in an attempt to crack down on companies taking advantage of different tax regimes across the single market. The FT notes that the measure would need the support of all 28 EU member states and that the measure would be opposed by the UK and Ireland. It quotes the Treasury saying: “Direct taxation is a matter for EU countries, and any direct taxation matters require unanimity across all EU countries” (FT, £, p8).
CMU to boost less developed EU economies
Think-tank New Financial has said that the EU’s less developed economies are likely to be the biggest winners from any reforms brought in under Capital Markets Union. It added: “In many countries, capital markets activity would more than double if their markets were as developed as the European average — providing not only valuable additional investment but an alternative to relying on a struggling banking system for funding” (FT, £, p30).
Richard Woolhouse, Chief Economist at the BBA, said:
“British businesses and consumers have started to put their foot on the gas. There appears to be broad confidence about the economy, which the banks are supporting through affordable credit, leading to rises in borrowing across the board.
“Business lending has risen in three of the first four months this year indicating that we might have reached a turning point. There was a significant pre-election jump in mortgage approvals which we would expect to continue in the coming months.
“There was a sharp rise in the amount savers deposited in their bank accounts and also in the amount people are borrowing through personal loans and credit cards. This suggests that consumer spending will continue to drive the British economy forwards.”
Commenting on the SME Finance Monitor 2015 Q1 results, a BBA spokesman said:
“This research shows that nearly eight out of 10 businesses have had the green light for finance in the past 18 months and confidence amongst SMEs is at its highest levels since this survey began in 2011.
“It’s great that businesses are saying they feel positive about their future and very few now see securing finance as a barrier to doing business.
“There is, however, still a gap between perception and reality when it comes to being approved for lending. If you’re thinking about applying we would urge you to speak with your bank – you are a lot more likely to get a “yes” than you might think.”
BBA Executive Director Paul Chisnall examines the Prudential Regulation Authority’s latest policy statement on implementing the ring-fence.
MEPs last night voted down high profile proposals on Bank Structural Reform. The BBA’s Head of EU Affairs, Ashley Dorrington, watched the proceedings unfold.
BoE defends ringfencing
Former Barclays chief executive and current external member of the Bank of England’s Financial Policy Committee, Martin Taylor, has defended ringfencing and dismissed the idea of UK headquartered banks being forced overseas by tough regulation (CityAM, p5). In a speech he criticised those “calling for a regulatory softening [that] is both structurally wrong and conjuncturally wrong”. He was responding to voices arguing for a review of whether ringfencing is now needed or whether it could be classed as costly and unnecessary now that banks have become more stable following the crisis. The article quotes BBA Executive Director of Financial Policy, Paul Chisnall: “The bigger concern for the banking industry is the variety of bank specific taxes that have been introduced in recent years, and in particular the Bank Levy, which we feel are damaging the competitiveness of the UK as a place to do business.”
EU referendum “threatens inward investment”
A new poll by accountancy firm EY warns that the UK’s “pole position” in Europe for inward investment could be threatened by plans for an EU referendum, which could be “disruptive” and create a slowdown (Sky News). Nearly a third of investors surveyed said they would either cut or freeze planned investments up to 2017, according to EY’s UK Attractiveness Report. Steve Varley, EY chairman and managing partner in UK and Ireland, commented on the survey: “Global investors have a strong perception of the UK as an attractive place to do business. The message that Britain is ‘open for business’ is getting across loud and clear to many existing and potential investors worldwide, but new strategies need to be developed to stay ahead in such a competitive market”. Mark Gregory, EY’s chief economist, said: “To maintain its position as Europe’s number one destination for inward investment, the UK must broaden its appeal outside of London.”
New government plans set out today
The Queen’s Speech will set out the new UK government’s “vision” today and CityAM (p5) takes a look at what we can expect – including moves towards an EU referendum, an enterprise bill to cut red tape for SMEs and a housing bill to help housing association tenants purchase their homes.
Sky News also gives a potted guide to the format, history and reason for having the Queen’s Speech.
FEMR to give more powers to regulators
The outcome of the Fair and Effective Markets Review will include an extension of the ban on equity market manipulation to trading areas such as foreign exchange, according to FT (£, p1) sources. The Review will call for “more powers to ban individuals implicated in misconduct and call for harsher sentences for insider trading”. Proposals will also include a ban on the “front-running” of client orders. The article adds that authorities are considering a “code of conduct that would apply across FICC [fixed income, currencies and commodities] businesses, overseen by a market standards body”. The results of the Review are to be formally announced on 10 June by Chancellor George Osborne and Bank of England Governor Mark Carney. You can read the BBA’s response to the FEMR consultation here.
Banks’ warning over new trading risk models
A letter from three international financial bodies to the Basel Committee on Banking Supervision has warned that proposed new risk-calculation models could make markets more volatile and unstable, reports the FT (£, p18). “Investor participation in certain markets is likely to fall further thereby negatively impacting on their depth and efficiency,” writes the International Swaps and Derivatives Association, the Global Financial Markets Association and the Institute of International Finance. The letter also warned that higher capital requirements will increase issuance costs and have a negative impact on secondary market liquidity, adding that the new rules could “discourage some market participants from hedging their risks, raising the prospect of increased market volatility and significant financial instability.”
Regulatory pendulum “swung too far in one direction”
The Sunday Times (£, p9) looked at the cost of regulation which has led to some banks to investigate the possibility of moving their headquarters out of the UK. The article stated that the Bank Levy and upcoming EU referendum “are diminishing the City’s status among global players”. The paper quoted a senior official at a British bank saying: “The PRA understands the complexities of banks and sees that the City of London is going to be harmed by all this.” The article noted that the BBA has commissioned a report into the competitiveness of the UK banking sector, and quoted BBA CEO Anthony Browne saying: “The regulatory pendulum has swung too far in one direction. There now needs to be a focus on not throwing out the baby with the bathwater”.
Authorities working on effects of Brexit
Saturday’s Guardian led with news that Bank of England officials are researching the financial effects of the UK leaving the EU. The existence of the work – dubbed Project Bookend – was made public after details were accidentally emailed to a Guardian editor. The project is being led by Sir Jon Cunliffe, deputy governor for financial stability.
Former Treasury Select Committee member Mark Garnier told Monday’s FT (£, p3) that MPs would call on bank officials to discuss the project, adding: “I think what will definitely happen is that the committee will look into the implications of the EU referendum on the banking system”.
Monday’s FT (£, p1) reported that Chancellor George Osborne is “gearing up for a new Treasury study of the economics of British membership of a reformed EU”. The article stated that the economic benefits of being part of a single market is likely to be “the most powerful argument for staying in” for Prime Minister David Cameron.
The fully integrated data model is not the “silver bullet” that some may claim and there is an alternative, writes Pavel Yakovlev, Head of Solutions Team EMEA at Axiom SL.
Bank customer satisfaction rate high
Research commissioned by the Competition and Markets Authority (CMA) has shown that only 4% of customers are dissatisfied with their personal current account (Telegraph, B1). The polling was conducted as part of a wider review by the watchdog into competition in the banking market which will reveal its early findings in September this year. A BBA spokesman said: “[Yesterday’s] statement takes a positive of view of recent innovations in retail banking and shows that more than 90% of current account customers are satisfied. Last year we published a series of ideas to help new banks set up and smaller players to grow which we hope will be taken up by regulators and politicians. In addition, there are now even more new and aspiring entrants to the banking market.” Read our full release here.
France objects to Britain’s exemption
France has raised objections to a proposed “carveout” for Britain within bank structural reform plans, on the grounds that it is “illegal, damaging to the common market and unnecessary” (FT, £, p10). The exemption from the European Commission’s proposals gave the UK a legal “derogation” on the basis that retail activities are ringfenced from investment banking. The French government made its objections known yesterday at a meeting to discuss the compromise, stating that they saw so-called “Vickers overhaul” as different to, and no substitute for, EU reforms.
Senior Managers’ Regime “not a witch hunt”
Andrew Bailey, chief executive of the Prudential Regulation Authority (PRA), has told top bankers to take more responsibility for conduct within their companies and emphasised that new Senior Managers’ Regime rules are “not a witch hunt” (Telegraph, B4). The regime, being introduced this year, is in response to the financial crisis and holds senior bank staff and some non-executives responsible for bad conduct. The PRA published a new set of duties for board members yesterday, and the Government recently introduced new criminal sanctions for “reckless misconduct” on the recommendation of the Parliamentary Commission on Banking Standards (PCBS). Mr Bailey said: “We do want to avoid what the PCBS described as the Murder on the Orient Express outcome when firms get into trouble, which is akin to the ‘everyone and no-one’ is responsible but everyone is connected to the event” (Telegraph, p4).
Reacting to this morning’s announcement by the Competition and Markets Authority, a BBA spokesman said:
“All the banks have been working with the CMA as part of this ongoing inquiry. There are already substantial changes underway across the banking industry to strengthen competition, which improves choice and service for customers. This includes initiatives like midata that help customers access their data and shop around, as well as a range of new technologies that have changed the way we bank both online and in branch.
“Today’s statement takes a positive of view of recent innovations in retail banking and shows that more than 90% of current account customers are satisfied.
“Last year we published a series of ideas to help new banks set up and smaller players to grow which we hope will be taken up by regulators and politicians. In addition, there are now even more new and aspiring entrants to the banking market.”
CMA updates progress of bank investigation
The Competition and Markets Authority has this morning announced further details of its investigation into personal and small business banking. The updated issues statement summarises the investigators’ current thinking following visits to 11 banks in recent months. The CMA’s work is focussing on three “theories of harm”: the extent to which customers can switch, the extent of market concentration and barriers to entry. Today’s statement takes a positive of view of recent innovations in retail banking and shows that more than 90% of personal current account customers are satisfied. The CMA press release can be read here.
US authorities impose £4billion Forex fines
The US Department for Justice has announced that six banks are to pay more than £4 billion to settle allegations that their staff rigged foreign exchange markets. Loretta Lynch, the US Attorney General, is quoted in the FT (£, p1) saying the penalties were “fitting” considering the “pervasive harm that was done”. The paper’s Lex column describes the fines as “material, unfinished, unpredictable and possibly ineffective”, adding that “shareholders should be livid”.
Cashless payments overtake coins and notes
The BBC reports Payments Council figures showing that the number of cashless payments has for the first time been overtaken by those involving cards, mobile phones and other means. Cash transactions by individuals, businesses and financial organisations were found to now account for 48% of all transactions in 2014. The Council suggested that cash payments are expected to fall by 30% over the next 10 years.
Garnier sets out his stall to chair TSC
The MP Mark Garnier explains why he is considering standing as the next chairman of the Treasury Select Committee, in an interview with the FT (£ p2). He pledged to stop “banker bashing” and focus on boosting Britain’s financial services industry. A former Bear Stearns banker and hedge fund manager, Mr Garnier also said that he would prioritise helping indebted households cope with rising interest rates.
Commenting on the BoE Agents’ Summary of Business Conditions, BBA Chief Economist Richard Woolhouse said:
“From the Agents’ summary we can seea further easing in credit conditions. Medium-sized businesses are benefitting from competition amongst banks and funding conditions available to smaller firms have also eased, which is great news for those looking to borrow and grow. The report says that businesses are also taking advantage of the broader financing with different sorts of lending of offer – from bank finance to alternative forms like crowdfunding and asset finance.
“With nearly eight in ten finance applications approved, we’d encourage business owners to speak to their bank if they’re thinking about borrowing.”
Now that a referendum seems virtually certain, YouGov polling numbers show a major turnaround from 2012 – to give the “Ins” a significant (and now sustained) lead. The Bertelsmann Foundation has produced the first calculations of the possible impact on the remaining EU states.
Business group speaks out over EU referendum
The CBI has called on businesses to “speak out early” in favour of Britain remaining in a reformed EU, BBC News reports. Sir Mike Rake, the CBI’s president, will tell the group’s annual dinner that there are “no credible alternatives” to EU membership. Elsewhere, the FT (£, p2) reports that the Government’s pledge to hold a referendum on Britain’s membership of the EU will be at the centre of next week’s Queen’s Speech. The paper says Prime Minister David Cameron will publish the draft bill on the referendum next Thursday, the day after the State Opening of Parliament.
Yesterday, the BBA announced that it had asked Sir Hector Sants and management consultants Oliver Wyman to lead a review into the competitiveness of the UK on behalf of the banking industry.
BBA Chief Executive Anthony Browne told City AM that a swift decision on Britain’s membership of the EU was necessary because uncertainty was discouraging investment in British companies. “One international bank has made a board-level decision to move operations out of London if Britain leaves the EU,” he told the paper. His comments were also reported by Reuters, Herald Scotland, International Banker, the Economic Times and Arab News, and Mr Browne appeared on CNN last night to discuss the review.
Frans Timmermans, First Vice President of the European Commission, told the FT (£, p7) that he could only envisage a change in EU rules once he was “completely satisfied that we apply the existing rules and we haven’t done that so far.” There is speculation that Mr Timmermans may be asked by the Commission to work with Britain in its efforts to renegotiate its relationship with the EU. Mr Timmermans said: “I get the impression they [the UK Government] know perfectly well what they want, and we know that they are extremely, extremely efficient and good negotiators. Anything I’d say now would not improve my own negotiating position — if I were in a position of negotiating.”
Comeback for CDS?
Wall Street is considering reviving single-name credit default swaps (CDS) – a derivatives contract that tracks the risk of default by a company that sells bonds (FT, £, p15). Regulators clamped down on this market after the derivative was criticised for the role it played in the financial crisis, but today banks and investors are looking for ways to prevent volatility when interest rates rise. Supurna VedBrat, co-head of electronic trading and market structure at BlackRock, is quoted saying: “Single name CDS offers a clean and efficient way to express credit exposure which the current market structure of the underlying secondary corporate bond market doesn’t afford us.”
UK economy in deflation
The Consumer Price Index fell by 0.1% yesterday, bringing the UK economy into deflation for the first since 1960, the Telegraph (B1) reports. The paper suggests that cheaper petrol and food have continued to push down the headline rate, despite a pick-up in the price of oil. Chancellor George Osborne yesterday insisted that negative inflation should not be mistaken for “damaging deflation” and the Governor of the Bank of England, Mark Carney, said the negative inflation was likely to be temporary.
The FT (£, p28) adds that the pound responded to the news by falling by 1% to $1.55. Alan Wilde, head of fixed income at Baring Asset Management, is quoted saying the deflation data would offer the Bank of England more time to allow for wage pressure “and may even allow rates to remain unchanged for longer than the market currently prices”.
BBA denounces calls for bankers’ pay to be capped
BBA Chief Executive Anthony Browne yesterday responded to suggestions by former Number 10 director of strategy Steve Hilton that bankers’ pay should be capped. Appearing on the BBC Radio 4’s Today programme, Mr Browne said there had been an 80% reduction in cash bonuses and the proposals would cause “catastrophic damage” to a leading sector that was one of the biggest contributors to tax receipts. His comments were later quoted by a range of publications, including the Daily Mail, and the Independent.
More needs to be done to rehabilitate securitisation structures and secure their place as suppliers of capital, writes BBA Executive Director Simon Hills.
Banks consider issues of EU referendum and competitiveness
Deutsche Bank has set up a working group to investigate the benefits of moving some activities to the eurozone in the event of Britain leaving the EU, reports the FT (£, p1). The paper notes that much of the bank’s investment banking operation is based in London, whilst the German lender also has an office in Birmingham. The article states that Deutsche is the first big bank to start “formally examining the consequences of a British referendum on EU membership”, and that London hosts more than 250 foreign banks.
Meanwhile, Sky News reports that the BBA has commissioned a report into the competitiveness of the UK banking sector, to be led by former Financial Services Authority CEO Sir Hector Sants and consulting firm Oliver Wyman. The review will aim to present the government with “progressive and implementable recommendations”, to ensure that the UK retains its standing as an international banking centre. The article notes that the review is expected to report back in the autumn. BBA CEO Anthony Browne said: “We want to make sure that the UK continues to benefit from the hundreds of thousands of jobs and tens of billions of taxes that are currently provided by the banking industry in this country. It is in no-one’s interest for the UK’s biggest export industry to lose its global competitiveness.” Read the full BBA press release here.
Former PM adviser calls for limits to bankers’ pay
Steve Hilton, the former Director of Strategy for David Cameron, has called fortop executives atbanks which rely on an “implicit backstop of state funding” to have their pay limited to that of civil servants, reports the BBC. He added: “The goal here is to create a much more secure financial system where you don’t have these giant companies that pose a threat to the whole economy”. Speaking on Radio 4’s Today Programme, BBA CEO Anthony Browne said that Mr Hilton’s proposals would “cause catastrophic damage to a leading sector of the British economy”. He added that remuneration in the UK banking industry had “changed dramatically” since the financial crisis and that the UK has the most “tightly controlled and regulated remuneration system in the world”. He concluded that the UK government “must make sure that banking remains internationally competitive – it’s not only good for London, it’s good for the whole UK economy”.
PPI complaints down
Customer complaints about Payment Protection Insurance have fallen to 204,943 in the year to March, down from 399,939 in the previous year (Telegraph, B4). Responding to the Financial Ombudsman Service’s figures on BBC Radio 5 live this morning, BBA Executive Director Eric Leenders said that banks have put “a lot of energy and resources into improving complaints handling”, and that there has been a reduction in the number of overall complaints at the Financial Ombudsman Service. He stated that banks have sent out letters to hundreds of thousands of customers who may have been mis-sold PPI, and he encouraged customers to deal direct with their banks or with free support agencies, rather than claims management companies. The full BBA press release can be read here.
Bank bosses’ warning on low interest rates
The FT (£, p6) writes that a number of leading financial executives have called on authorities from across the world to bolster their use of macroprudential tools “amid fears that ultra-low interest rates have increased the risks of financial instability”. The statement, co-ordinated by the World Economic Forum, states that these tools will help “to address emerging market inefficiencies in the financial system, such as over-exuberance within asset classes, for example in real estate lending”. However, the group also warned that if rules were applied too “narrowly”, that it could push risks into the shadow banking market.
The BBA has announced that Sir Hector Sants and Oliver Wyman have agreed to lead a review into the competitiveness of the UK on behalf of the banking industry.
Responding to the Financial Ombudsman Service Annual Review 2014/15, a BBA spokesman said:
“It’s good to see that overall complaints are falling. Banks are determined that there will be no repeat of any of the bad practices which caused mis-selling in the past and have made appropriate changes. Staff are now rewarded for high levels of customer service and not sales volumes.”
Bailey: HSBC review “entirely natural”
CityAM reports that Bank of England deputy governor Andrew Bailey has said it is understandable for HSBC to review whether it should move its headquarters out of the UK. He said: “It is entirely natural that as an institution your shareholders should demand that you do this assessment. As a private organisation they should do it.” The Sunday Times (£, B1) reported speculation that HSBC’s headquarters review could lead to the Government revising some of the ring-fencing rules which look to split investment banks from retail banks in the UK. However, the article quotes sources playing down the suggestion, saying: “It is hard to see a minister being able to make a good case for watering down what was one of the biggest reforms after the credit crisis”. In a separate article (£, B4) Dominic O’Connell suggests that: “Any minister would struggle to sell such an about-face to the public. The way forward might be a subtle watering-down of the proposals, enough to keep the critics content and HSBC in Britain.”
Daily Mail launches campaign against technology in bank branches
Saturday’s Mail (p4) launched a new campaign against “robo” checkouts in supermarkets and self-service machines in bank branches. In its “bring back real service” campaign the paper alleges that customers are increasingly frustrated about having to use banking machines rather than carry out basic banking with branch staff behind a counter. The article quotes the BBA saying: “High Street banks have invested millions in refurbishing their branches to install the latest technology to make them easy and accessible. This is in response to increasing public demand to use technology to speed up their transactions in branches. Branch staff are still an important part of this picture, providing customers with the choice to visit a counter or support customers in understanding the new technology in branches.” The paper runs a number of letters from readers complaining about machines in today’s paper (pp30-31).
Banks raise fears over Basel review
The Times (£, p38) looks at fears among investment bankers that new capital rules being drawn up by the Basel Committee on Banking Supervision could force them to make sweeping changes to their business models. The article reports that, “One executive said that his company regarded the work as one of the biggest swing factors in determining its new business model… Under the consultation, investment banks would be required to reapply to regulators for approval of the models they use to value their positions on a desk-by-desk basis, which could present some companies with problems if they were unable to convince supervisors to sign off again on their activities.”
BBA Chief Executive, Anthony Browne, considers the post-election environment and impresses the importance of protecting London’s status as a global financial powerhouse.
Carney calls for “appropriate speed” on referendum
Bank of England governor Mark Carney has indicated that the proposed referendum on Britain’s membership of the EU should happen “as soon as necessary” (Telegraph, p4). Mr Carney said: “We talk to a lot of bosses and there has been an awareness of some of this political uncertainty – whether because of the election or because of the referendum. What they’ve been telling us, and we see it in the statistics, is that they have not yet acted upon that uncertainty. Or, to put it another way, they are continuing to invest, they are continuing to hire”. He went on to say that he was sure that the government would act with “appropriate speed” and that the referendum would be “as soon as is necessary”. Mr Carney also remarked on the positive impact that being in the EU has on Britain’s economy.
The FT (£) reports that Foreign Secretary Philip Hammond wants a “deal as fast as possible”, signalling a possible 2016 vote. Mr Hammond also said that a major treaty change over the country’s future relationship with Europe was not, in itself, a political goal for the Government.
Competitiveness is “biggest challenge” for City
In CityAM (p14) BBA Chief Executive Anthony Browne examines the post-election environment and impresses the importance of keeping London globally competitive. He said: “International league tables show us slipping down the rankings of financial centres. Declining competitiveness is not just a concern for the industry, but for the country. The UK has now lost its number one position as a financial services exporter, overtaken by the US. Banking remains by far the UK’s biggest export industry, creating hundreds of thousands of jobs, and is by some measures the country’s biggest taxpayer. Now is the time to make sure we aren’t throwing out the baby with the bathwater.”
Lloyds to return to private ownership
Lord Blackwell, chairman of Lloyds Banking Group, told the bank’s AGM yesterday that the lender could be returned to full private ownership “within 12 months” (FT, £, p21). Six years after their £20 billion bailout by the government, Lord Blackwell said that “it’s possible and would be very desirable” for the government to finish off selling its holdings over the next year. António Horta Osório, the chief executive of the group, also told shareholders that “the group has progressed further towards full private ownership.”
Bank signals that rates won’t rise until summer 2016
The Telegraph (B1) reports that the Bank of England has signalled that interest rates are unlikely to rise in the UK until next summer as predictions for UK growth were revised downwards. The Bank predicted that the UK would slip into deflation this year before rising above 1% by the end of 2015. The front page of the Mail goes with the line that the Bank has suggested that immigration has suppressed wages. Asked about the recent sell off in sovereign bonds, Mark Carney took a relaxed stance, suggesting it was more likely to be a correction rather than a panic that could affect financial stability (Independent, p55).
Entrepreneurs backing new challenger banks
The FT (£, p21) reports that a new wave of challenger banks is set to launch, backed by entrepreneurs who are trying to take advantage of a growing market. However, the paper also reports fears that challengers will never have enough scale to take on the established players as private equity houses sell down their positions in some of these newer banks.
The British people have spoken, and contrary to most expectations one party has won a majority. Congratulations to the new government – David Cameron’s victory on 7 May was clear.
The BBA’s Financial Crime Director, Matt Allen, gives a whistlestop tour of some of the key initiatives on the industry agenda at the moment to address financial crime
Osborne pledges to negotiate better deal from EU
Chancellor George Osborne arrived in Brussels yesterday, telling fellow EU finance ministers that the UK had “a very clear mandate to improve Britain’s relationship with the rest of the EU,” and “no one should underestimate our determination to succeed”, Bloomberg reports. However, Mr Osborne’s French counterpart, Michel Sapin, said France was not open to renegotiating treaties: “If it’s about discussing the functioning of the EU, this sort of discussion is possible. If it’s about renegotiating treaties, you know the position of France. That’s a completely different matter. In the current context, no treaty change, no constitutional debate.”
The FT (£, p1) adds that Germany said it would not be rushed into changing the EU’s treaties to meet the Government’s reform demands. Wolfgang Schäuble, Germany’s finance minister, is quoted saying: “The opinion of the German government has always been that we need treaty changes, whenever, the sooner the better. But the realistic assessment of the German government is that it is not at all certain that this can be achieved quickly.”
Greece pays the IMF
Greece yesterday made a €650 million payment to the IMF after using funds from its “Special Drawing Rights” account held at the fund, which were provided by the IMF itself, the Times (£, p35) writes. The account, which is a reserve asset created by the IMF, is usually available for short-term liquidity or currency exchange emergencies faced by central banks. The paper quotes one bank official saying: “It was either that or seeing Greece default and joining Somalia, Sudan and Zimbabwe as the only countries currently in arrears with the fund. The downside, now, is that there’s no money left for another emergency situation.”
Elsewhere, the Telegraph (B3) says Greece is in “the classic throes” of a bank run, and car sales jumped by 47% last month as worried consumers see motor vehicles as the asset of choice.
Republicans reveal proposals for banking regulation
The Republican Party has unveiled its first big piece of financial legislation since taking control of the US Senate at the start of this year, the FT (£, p8) reports. The draft Financial Regulatory Improvement Act of 2015 includes provisions to help small community banks by reducing costly Dodd-Frank regulatory requirements – such as exempting them from the Volcker rule on derivatives trading. The Bill also proposes to raise a threshold above which banks are designated as systemically important and become subject to tougher regulation. However, it notes that the Bill’s chances of becoming law remain doubtful and Democrats have refused to engage so far.
Bank Levy “ripe for reform”
Chancellor George Osborne must “resist the temptation…of milking the banks even harder, via the cash cow of the Bank Levy”, writes Patrick Jenkins in the FT (£, p18). He states that the policy is “so flawed that it may threaten the long-term interests of the banks, the broader business community that they should be serving, and the taxman.” Although a number of European countries have imposed their own bank levies, Germany’s raises a tenth of the UK’s in revenue, with Jenkins adding that banks “cannot be vilified forever”.
He suggests two reforms to the tax. Firstly, align the levy with ring-fenced entities, thereby removing foreign banks and UK’s foreign operations from the scope of the tax. Secondly, make other financial institutions subject to the levy in order to ensure the “safety and soundness” of the system.
Cameron’s reshuffle signals era of “blue-collar Conservatism”
Prime Minister David Cameron continued his cabinet reshuffle yesterday as he looked to replace ministerial positions vacated by the Liberal Democrats. Former banker and Treasury minister Sajid Javid has been appointed Business Secretary, with one of his allies stating that “deregulation will be the top of his agenda” (FT, £, p1). The Guardian Online suggests that he will face pressure from business groups on the implications of an EU referendum.
Former Parliamentary Private Secretary to George Osborne and Deputy Whip Greg Hands has been promoted to Chief Secretary to the Treasury, former investment manager Harriet Baldwin has been appointed as City Minister and Anna Soubry has moved from the MoD to become Minister for Small Business. A BIS spokesperson told CityAM (p12) that it was unclear whether Ms Soubry would have the same responsibilities as her predecessor, Matthew Hancock.
PM hopes to bring EU referendum forward to 2016
The Guardian front page leads with the Conservatives looking to draw up plans to bring the EU referendum forward to 2016 “to avoid a politically dangerous clash with the French and German elections in 2017”. Government sources indicated that key factors which would allow an earlier vote include the Conservatives’ majority in the Commons, the early introduction of the referendum bill and peers not holding the bill up in the House of Lords. The paper suggests that David Lidington – who has held the position since 2010 – will be reappointed as Europe Minister.
Greece completes loan instalment payment to IMF
The Greek finance ministry has ordered a payment of €750 million to the IMF, ending speculation that it would use it as a “bargaining chip” with its creditors (FT, £, p7). Eurozone finance ministers welcomed the announcement, but sources close to the negotiations stated that “differences between Athens and its bailout monitors remain on nearly every major issue”. The Times (£, p44) notes that markets did not react positively, with European government borrowing costs rising and the euro falling 0.24% against the dollar.
Piers Claughton, corporate affairs manager at Which?, explains why the success of the Government’s Pensions Wise service is crucial in the wake of new pension reforms.
Industry concern over Bank Levy, whilst MPs call for reform
The FT (£, p19) reports that foreign banks operating in the UK are “plotting a managed retreat” from operations that could expose them to the UK Bank Levy, which now stands at 0.21% following a further increase in this year’s Budget. Commenting on the impact of the increased levy, BBA Chief Executive Anthony Browne said: “The levy means it is becoming uneconomic to do some of this business in the UK”, commenting that repo and international trades that have traditionally been booked in London are now being moved elsewhere.Lord Mayor Alan Yarrow has told the Times (£, p42) that businesses moving their headquarters overseas would “seriously damage Britain’s reputation as a good place to do business and to locate banks”.
CityAM splashes with calls from a number of Conservative MPs to end “banker bashing” and “rein back punitive taxes aimed at banks”. Mark Garnier MP, who sat on the Treasury Select Committee during the last parliament, said: “Getting stuck into the Bank Levy every so often to demonstrate that our bank bashing is as good as their bank bashing is not the way forward… We need to give the City the space to implement changes we made over the last five years.” Mark Field MP echoed Mr Garnier’s sentiments, warning that the UK is nearing a “tipping point” with the Bank Levy. “I would very much hope that insofar as we have future levies, we aren’t looking to squeeze a little bit too much out of the banks,” he added.
City’s attention turns to EU referendum
Following the market’s strong performance on Friday after a definitive election outcome, the FT (£, p23) writes that the “euphoric market reaction “could fade quickly as investors start considering the risks associated with potential “Brexit” and an EU referendum. According to the front page of today’s Telegraph, the Prime Minister has already started making calls to European leaders as officials are considering bringing the referendum forward to 2016. Writing in CityAM (p19) Mark Boleat comments that while “Europe was the dog that didn’t bark in the election”, the business view is clear – that Britain needs to be in the EU. He notes that what is needed now is quick negotiation focussing on reform for the EU itself, not just British terms.
Financial services are likely to form an important part of Luxembourg’s EU presidency agenda. BBA EU Policy Advisor Claudia Trauffler travelled to the country to find out more.
Conservatives will be biggest party as results continue to come in
The Conservative Party look to be on course to form a majority government as the results of the UK general election continue to come in (BBC). Ahead of a final result, BBC Political Editor Nick Robinson writes: “Personal triumphs for David Cameron and Nicola Sturgeon will not just reshape British politics but could perhaps reshape the future of the United Kingdom itself” (BBC). CityAM writes that the feeling amongst economists is that “a Tory government without a formal coalition will bring more stability to the economic outlook.” The Telegraph reports on the market response, saying “sterling storms at the prospect of five more years of Conservatives.”
No agreement on derivatives rules
The FT (£, p30) reports that US and European regulators have failed to come to a consensus over recognition of each other’s rules on clearing houses. The European Commissioner for Financial Stability, Jonathan Hill has been in discussions with Timothy Massad, chairman of the US Commodity Futures Trading Commission (CFTC) in order to harmonise rules to prevent banks and hedgefunds from moving jurisdiction according to where they receive the most favourable treatment. Talks have been continuing for two years now with no sign of a resolution, the EU arguing that the CFTC’s approach is “less stringent”, according to the report. Both said that they hope to come to an agreement on approach by the summer.
Optimism grows for Greece agreement
The Greek deputy prime minister, Yannis Dragasakis, has said that his government is approaching “common ground” in talks with creditors (Guardian, p29). He is reported as saying: “Talks, so far, have shown that there is common ground in changes and political measures and, therefore, I believe a deal is possible in the interests of everyone”. The country’s government are putting together a package of reforms to present to the European Union and International Monetary Fund (IMF) in order to unlock €7.2 billion in rescue loans. The Telegraph reports the suggestion from one of the board members of the European Central Bank, Yves Merch, that Greece could use a “parallel currency” to pay civil servants, should then run out of euros. He told Spanish newspaper La Vanguardia: “”There are intermediate solutions circulating, such as the issuance of a parallel currency or IOUs. All these measures are among the exceptional tools that any government can consider if it has no other options. But all of them have a high cost.”
The use of advanced risk models in banks and financial institutions has caused a revolution in the way firms conduct their business, writes Ruben García Moral and Juan García Cascales from consulting firm Management Solutions.
The midata initiative aims to give consumers access to their data to help them find a better deal, or help them understand their spending habits. BBA Policy Adviser Walter McCahon explains the new midata service for personal current accounts.
Warnings sounded over impact of uncertain election result
Reuters reports concerns in the City over whether the uncertainty over a tight general election could impact on business, particularly if the country does not have an effective government for a prolonged period of time. It says that senior bankers have warned about the dangers of a “period of ‘drift,’ that no outright winner will produce a lack of confidence and uncertainty that will last for weeks.” However it cites the BBA saying that it would be uncertainty and caution among borrowers that would be more likely to affect lending volumes, rather than any reluctance by banks to lend. “As we stand now I don’t think that there’s any evidence that the supply side of the lending equation has been impacted at all by the political uncertainty,” said the BBA’s Chief Economist Richard Woolhouse.
In a roundup of what business leaders want to see from the political parties after the General Election, CityAM (p4) reports that most wanted to see a greater focus on entrepreneurship and cites BBA Chief Executive Anthony Browne’s call for greater focus on financial education in schools.
Sell-off in government bonds spooks markets
The FT reports that European stocks have fallen this morning because “investors remain spooked by the battering meted out to government bonds”. The value of sovereign bonds has fallen by £223 billion this week and Bill Gross, the bond trading veteran, has said that German 10-years, or bunds, look to be “the short of a lifetime”. Today’s FT leader (£, p12) is worried “that bond markets no longer have the capacity to behave rationally”.
The New York Times (p23) says that senior figures from across the financial markets are warning that “the world’s bond markets… are in danger of breaking down.” The Telegraph (B4) quotes Federal Reserve chair Janet Yellen saying that there could be sharp adjustments in global bond markets when US rates rise. The falls in bond prices are said to be caused in part by steep rises in the oil price, which is now at $68 a barrel. Timothy Adams, the chief executive of the IIF, has warned about the lack of liquidity in bond markets, saying that “there’s just less capacity for making markets”. Hamish McRae (p67) says in the Independent that “if European bond prices crash, other bond prices are likely to fall as well and I suppose you could go on to argue that equity and property markets are likely to be hit, too.”
The BBC reports that Ms Yellen has also raised the alarm over the record high levels of stock markets in the US and the UK, which she said presented “potential dangers”.
Standard Chartered “listening carefully” to investors over HQ move
Standard Chartered chairman Sir John Peace has told investors that the bank is “listening carefully” to them over whether it should move its headquarters. He said that the board would be monitoring the “impact on group costs” of further expected rises in the Bank Levy The Times (£, p44) reports that Aberdeen Asset Management, the bank’s second biggest shareholder, has said that a move away from the UK should be considered
Polls open tomorrow
Less than 24 hours remain until the polls open for the general election, as party leaders make their final campaign push. City AM reports that the gap between the Conservatives and Labour has narrowed, according to the latest national polling by Lord Ashcroft. The poll found that the Conservative lead fell to 32%, placing the party two points ahead of Labour on 30%. Labour leader Ed Miliband yesterday told the BBC that his plans to abolish non-dom tax status were non-negotiable, and he did not accept an assessment made by the Institute for Fiscal Studies which said debt would be £90 billion higher in 2019-20 under his plans.
In the FT (£, p3), constitutional expert Vernon Bogdanor explores how each party would attempt to form a minority government, and says that if either is unable to command support for its programme in the Commons, there could be a second election. Professor Bogdanor stresses that today there is “no reason to believe that a second election would yield a notably different outcome”, and suggests that the multi-party system is perhaps a permanent feature of the landscape. “If that is so, our institutions, include the first past the post system, will have to accommodate themselves to that transformation and the Cabinet Manual will have to be rewritten.”
In its leading article, the Times (£, p35) said this election is “certainly the first test of a new era of multi-party British politics and could be the last in the history of a truly United Kingdom”.
IMF and EU “implacable” over bailout negotiations, says Greek government source
The Guardian (p21) quotes a senior Greek government source claiming that serious disagreements and contradictions between the IMF and EU are creating obstacles in negotiations over bailout talks. The source adds that both lenders were digging in their heels and effectively enforcing “red lines everywhere”. The paper also quotes Greece’s health minister, Panagiotis Kouroumblis, saying the creditors were “implacable” and made Greece feel as though “they are impossible to satisfy”. Greece’s bailout programme ends in June and if an agreement cannot be reached then its economy could collapse.
Yesterday Greece announced that it is to levy a €1 fee for every €1,000 withdrawn from its ATMs in a bid to raise revenue and stop money from leaving the country, the Times adds (£, p37). The paper quotes a senior finance ministry official saying: “The surcharge is just one of a grab bag of measures we are considering if things get tough. We need cash fast.”
HSBC HQ review will “take months not years”
HSBC chief executive Stuart Gulliver yesterday said that the bank’s headquarters domicile review would “take months not years”, the FT reports (£, p1). In a call yesterday to discuss quarterly results, Mr Gulliver said the bank’s UK strategy would depend on the final rules on ringfencing regulations, control of its dividend and the accountability rules in the new Senior Managers Regime. The Guardian (p21) adds that Mr Gulliver cited the Bank Levy as one key concern over keeping HSBC’s headquarters in London. More information on the methodology in comparing HQ locations will be set out on a strategy day on 9 June.
Growth forecast cut
The National Institute of Economic and Social Research (NIESR) has cut its forecast for Britain’s economic growth this year from 2.9% to 2.5%, the Guardian (p21) reports. The paper says the move comes after weaker than expected GDP figures for the first quarter of this year, and the biggest single uncertainty facing the economy is how quickly productivity can be improved. Elsewhere, the Independent (p57) reports that growth in new orders in the construction industry has fallen to its weakest level since June 2013, figures from financial data firm Markit have suggested. “The uncertain general election outcome appears to have put some grit in the wheel of decision-making,” said Markit’s senior economist, Tim Moore.
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