News

Banks promote apprenticeship schemes

A number of high street banks have planned to take on 1,000 apprentices that will be able to get a permanent role, full pay and benefits equivalent to other new joiners. 30 per cent of the intake will represent staff from the UK’s most disadvantage areas. Secretary of State for Business, Innovation and Skills Vince Cable said: “Apprenticeships are a tried-and-tested way for employers to grow their talent” (Sun, p59).

Unemployment falls to 6.9 per cent

The Telegraph (pB1) reports that, according to the latest ONS data, unemployment has fallen below 7 per cent for the first time since 2009, triggering a “new phase of monetary policy” and an “economy towards sustainable growth”. The unemployment figures suggest an earlier interest rate rise from the Bank of England. The Guardian (p2) highlights senior economic adviser from the EY Item Club Andrew Goodwin saying that these figures represent “the beginning of the end of the cost-of-living crisis”.  The Wall Street Journal notes that “the first phase of the BoE’s interest-rate guidance […] can be formally set to rest”.

Last week, the US Federal Reserve announced that the largest US banks will be expected to meet a leverage ratio of 5 per cent. Their decision demonstrates once again how something intended as a simple and transparent backstop can be anything but.

European Parliament agrees on new bank rules

The FT (£) leads on the EU banking reforms “designed to make banks safer and financial markets more transparent”. Les Echos reports that European Parliament President Martin Schulz called the final pieces of legislation on banking union a “high point” of the current legislature. David Ereira, a partner at Linklaters, told CityAM (p3) that the success of the new rules on banking union will “be down to how the European and national supervisors and resolution authorities across the EU work together”. BBA Chief Executive Anthony Browne welcomed the vote, stating: “Powers to enable the orderly failure of banks are a vital part of the new regulatory regime. The rules agreed today will make banks safer and sounder, incentivise market discipline and protect taxpayers from the costs of failure.”

Further legislation will increase the transparency of Europe’s capital markets, as well as ensuring that shareholders rather than bondholders will be the first to bail-out troubled banks. In addition, Handelsblatt writes that basic payment accounts “must be offered by enough credit institutions in any given EU country to guarantee both easy access for all and competitive offers“. The Telegraph (pB4) notes that the vote obliges countries to guarantee the first €100,000 (£85,000) in any savings account.

Business concern over ringfencing

The CBI has warned that SMEs may be adversely affected by ringfencing provisions as they would restrict access to hedging and trade finance products, according to the FT (£, p2). Under draft proposals, retail banks will be able to offer SMEs some simple derivatives to hedge risks, but not options. CBI director of competitive markets Matthew Fell said: “We seem to be hitting a bit of a brick wall in landing on the right definition”. BBA executive director Paul Chisnall told the newspaper: “The Treasury needs to talk to those that rely upon bank services so that they ensure that their hedging needs and preferences are understood.”

Smaller banks spy opportunity to challenge large lenders

The FT (£, p2) reports that UK challenger banks will be able to enlarge their share of the sector as larger banks deal with the upheaval prompted by new structural reforms. Chief finance officer of Arbuthnot Group James Cobb said: “The opportunity it gives us is between now and 2020…the (big) banks are going to be focusing inwardly over the next five years at least I think.” Last year smaller banks “welcomed moves by the Bank of England” to widen the range of collateral it accepts in liquidity operations, potentially increasing the number of institutions that could access the facilities.

There are billions of places around the world, but there is one place that really caught my eye: the BBA –  a really unique place to work.

MEPs to pass sweeping reforms to market trading

The European Parliament is expected to adopt the Markets in Financial Instruments Directive (Mifid II) later today, according to the FT (£, p21). MiFid II includes tougher rules for trading commodities, over-the-counter derivatives and anyone undertaking high-frequency trading will now be regulated. The European Securities and Markets Authority will then begin the “complex process” of writing more than 170 technical rules that govern how markets operate.

Facebook seeks approval to compete in digital payments market in Europe

The Telegraph (pB5) reports that Facebook has applied to Irish regulators for “e-money” status. If approved, the EU’s policy of “passporting” would give the social networking site the ability to offer digital payments services in all EU member states. It aims to compete in the money transfer market – valued at between £3.5 trillion and £7 trillion by the World Bank. The Guardian (p21) adds that online giants Amazon and Google already offer e-money services, reflecting growing competition between financial services and the technology companies in the digital banking market.

Some EU member states calling for Liikanen to also apply to UK, says leaked document

EU countries, led by France and Germany, are opposed to the UK receiving an exemption from EU banking reforms that will ban proprietary trading, according to a leaked European Council document seen by the Times (£).The UK is exempt because it has already introduced the Vickers Commission’s bank reforms, including a ring-fence around British retail banks from their investment banking businesses. The document said: “These concerns mainly relate to the risk of discrimination against different national laws, market fragmentation and regulatory arbitrage within the EU single market for financial services.”

MPs to examine “concerning” new powers for HMRC

The front page of the FT (£,  p1) reports that the Treasury Select Committee (TSC) has announced that it will launch a further inquiry into the Government’s plans to give HMRC the power to dip into taxpayers’ bank accounts to recover unpaid tax.  TSC chairman Andrew Tyrie said:  “We must be vigilant to ensure we don’t lose the essential balance between the powers that HMRC needs and protecting individuals”.  Mr Tyrie described the proposal as causing ““considerable concern”.

‘Fintech’ companies predicted to challenge established banks

The FT (£, p21) looks at the challenges that new financial technology companies dubbed “fintech” pose to the traditional banking sector.  They note how the major banks all have major programmes where they seek to work with fintech entrepreneurs but report that observers are warning that “one day soon the big banks will turn round and realise that half their sector has been taken out.”  The article quotes research by the BBA that found that mobile phone banking has doubled in the last year.  Saturday’s Guardian also mentioned the report when looking at plans for the launch of Atom – a new digital only bank.

Andrea Leadsom takes City brief in Treasury shake-up

The new Economic Secretary to the Treasury, Andrea Leadsom, has been given responsibility for the City and financial regulation, writes the FT Weekend (£, p2).  A former banker, Leadsom served on the Treasury Select Committee prior to her promotion to Government. The Financial Secretary to the Treasury, Nicky Morgan, will lead on European and woman issues.

New EU pay rules could lead to higher fixed costs at banks

The FT (£, p19) reports that some investors will register protest votes at upcoming shareholders’ meetings against banks’ decisions to increase base salaries ahead of new EU regulations on bonuses which come in next year.  A separate article in the FT (£, p20) looks in more detail at plans for allowances being considered by some major banks.

“Crackdown” on overdraft charges

FCA research has provoked criticism of bank overdraft charges, saying that many on low incomes see overdraft debt as “free money” (Times, £, p48). Eric Leenders, the BBA’s executive director in charge of retail, said: “Millions of people find overdrafts are an easy way to borrow money, more flexible and convenient than taking out a loan. Anyone who uses this type of borrowing receives details of how much they are charged in their accounts statements. Overdraft charges have plummeted in recent years, with estimated savings of up to £928 million for customers since 2008. But if you are unhappy with how much you are being charged, we recommend you shop around for an account better suited to your needs” (Full BBA release).

More customers switching accounts using CASS

The BBC News website reports on the increase in customers switching their accounts using the current account switching service (CASS) with a 14% increase on the same time last year. Gary Hocking, managing director of the Payments Council said: “There’s also been a noticeable surge of advertising activity from current account providers, big and small, suggesting that the new service is helping foster competition and choice for customers.” (BBC News)

EU rules could alter BoE’s position as lender of last resort

Britain has failed to secure revisions to an agreed EU “rule book on bank crises” which could mean that the bank could no longer offer covert Treasury backed emergency loans (ELA) to banks in financial difficulty. Sharon Bowles MEP, chair of the European Parliament’s committee on the regulation said: “In a systematic crisis…I am sure ELA will be done [if it is needed], not least because last time everyone was begging [the BoE] to do it” (FT, p5).

Lagarde: Negative rates or quantitative easing “just a question of time” for ECB

The head of the International Monetary Fund has said that she is ‘encouraged’ by comments made at the last board meeting of the ECB in relation to deflation within European economies which suggested the bank is “envisaging any tools to respond to the situation”. Lagarde and IMF Chief Economist OIivier Blanchard have been calling for “unconventional measures” from the ECB (Telegraph, p4)

ECB and BoE push to ease rules on “vilified” asset-backed securities

The FT reports (p1) that they have seen a draft paper from the central banks that ask for a relaxation of rules to make asset-backed securities more attractive. This forms part of a campaign by the ECB “to distinguish high-quality European debt that has been packaged up or “securitised” from more risky US loans”.

Ask the senior management of a bank what they regard as most important about Enterprise Risk Management (‘ERM’) and the chances are they will tell you it is the ability to have a holistic view of the risks they are running.  Their perspective is typically ‘top-down’ and seldom do they think of it in terms of the core bottom-up enabler for ERM – data.

BBA: “Customer complaints to banks down nearly 25 per cent in 12 months”

According to data released by the FCA, complaints about financial products dropped 15 per cent in the second half of 2013 (Herald, p13) (FT, £, p25). The Times (£, p44) reports that PPI claims in particular fell 22 per cent, the lowest six month figure since 2006. Executive Director of Retail Banking at the BBA Eric Leenders said: “Banks are determined that there will be no repeat of any of the bad practices which caused mis-selling in the past” (Herald, p13).

IMF: “EU’s banking system is a serious threat to global financial stability”
The International Monetary Fund warns in its Financial Stability Report of the “dangers of bringing monetary policy back to normal” (FT, £, p12). The Guardian (p27) writes that the report is optimistic about the “Goldilocks” recovery and highlights IMF’s Financial Counsellor José Viñals saying: “After a turbulent start, the normalisation of monetary policy has begun. But a bumpy exit is possible.”  The Times (£, p41) focuses on the IMF’s warning on Britain’s gross debt despite its previous prediction that “Britain would grow faster than any other advanced nation this year”.

Launch of digital-only bank

Following last week’s report by the BBA on mobile banking, the former Chairman of Metro Bank Anthony Thomson has announced intentions to create an online-only bank called Atom (FT, £, p24). Mr Thomson commented: “Branch usage has fallen off a cliff and telephone-based banking is in decline. All the explosive growth is in digital generally and mobile in particular” (Telegraph, pB3).

Figures published today by the BBA show that credit card borrowing is growing at twice the rate it was a year ago.

Commenting on the latest FCA complaints statistics Eric Leenders, executive director of retail banking at the BBA, said :

“Today’s FCA figures today show that customer complaints fell last year, with those to banks down nearly 25 per cent in just 12 months.

Banking industry published latest postcode data

The BBA and Council for Mortgage Lenders have published the second set of industry-wide data revealing details of borrowing to individuals and businesses classified by more than 9,000 postcode sectors. Participating lenders also published their own figures on their websites. The Guardian (p24) reports that a suburb in Bath topped the tables for personal loans per person. BBA Chief Economist Richard Woolhouse said of this data: “This data is complex and it remains very difficult to draw firm conclusions about lending at a local level.

IMF predicts UK will grow fastest of any G7 economy in 2014

A number of newspapers report that the International Monetary Fund (IMF) has raised its forecast for UK growth to 2.9 per cent this year – the fastest of any country in the G7 group of leading economies (FT, £, p1). The upward revision comes as the National Institute of Economic and Social Research estimated that the economy grew at 0.9 per cent in 2014 Q1. Manufacturing grew at 1 per cent and industrial production rose 0.9 per cent January to February 2014 (FT, £, p2). UK economist for Deutsche Bank George Buckley said: “Q1 looks set to be another stellar quarter of growth for the UK.”

Metro founder set to launch new digital bank

Anthony Thomsom, founder and ex-Chairman of Metro Bank, intends to launch a new digital-led national retail and business lender called Atom, according to Sky News. Mr Thomson is reported to be close to submitting a licence application to the industry’s regulators. The new business is not expected to have any physical branches and will be primarily accessible through the internet and digital apps. Last week, the BBA published research showing that UK-based customers conducted almost 40m mobile and internet banking transactions each week last year.

The lesson that European lenders can derive from the Fed’s Comprehensive Capital Analysis Review (CCAR) is that regulatory stress tests are likely to become more dynamic.

This morning we have released the second quarterly instalment of postcode lending data for the period Q3 2013.  This shows the stock of lending (amounts outstanding) for mortgages, personal loans and SME lending by postcode sector across the country (GB).  There are 10,000 postcode sectors across the country – these normally consist of the first four or five digits or letters of a postcode.

Bank of England to back export finance

On a visit to Rio de Janiero, George Osborne announced that the Bank of England will support the UK’s export finance in a step to drive down Britain’s trade deficit – a policy outlined in the BBA’s Budget Submission. The Chancellor said: “Banks will now have access to a special Bank of England facility [the sterling monetary framework] that will make it much less risky for them to extend loans to our exporters” (FT, £, p2). The Telegraph (pB5) adds that it has the “potential to reduce the cost of export loans”. The Guardian (p24) writes that this is the second part of a package that included the doubling of the UK Export Finance lending facility to £3 billion announced in last month’s Budget.

ONS changes system of measuring Britain’s economy

The FT (£)leads with the ONS announcing that it will overhaul the way it measures the economy, resulting in the doubling of the official measure of household savings and the overall size of the economy being as much as five per cent bigger than previously thought. The savings measurement will now include funded defined benefit pension rights as if they were present income. The new global accounting standards, which will be introduced in September, follow similar changes introduced in the US, Canada and Australia. Support for savers was a central issue in the BBA’s Budget Submission.

New leverage ratio for US banks

In the US a new leverage ratio is expected to be finalised today, according to the FT (£, p16). US regulators have proposed minimums of 5 per cent equity against total assets at the holding company level and 6 per cent at the bank level.

Major lenders today publish details of borrowing to individuals and businesses classified by more than 9,000 postcode sectors for the second time.

The industry-wide data has been compiled jointly by the BBA and the Council for Mortgage Lenders.  Participating lenders will also publish their own figures on their websites.

The BBA aims to help make the UK the best place to do business for foreign banks as well as those that originated here.

Optimism returns: Survey point to surge in confidence by FTSE FDs and SMEs

Finance directors of Britain’s largest firms are more confident than that any point for six and a half years, according to a closely followed survey by Deloitte (£, p39) reported in The Times. The study is one of a number of indicators reported across the media today that suggests Britain’s economic recovery is gathering pace.

The professional services group’s poll found that 71 per cent of 126 FTSE chief finance officers surveyed said that now was a good time to take risk onto their balance sheets – compared with 34 per cent a year ago.

Meanwhile, a report by GE published in the same newspaper suggests that small and medium-sized businesses will create 660,000 jobs and spend £58.6 million on machinery and other equipment over the next year.

The Times also reports that research by accountants UHY Hacker Young (£, p43) showing that 76 companies have floated on the Alternative Investment Market raising £2.2billion in the past 12 months – three times as much as in the previous year.

However, The Times’ (p42) does publish figures compiled by the Labour party that show that not a single business has applied to use the Export Refinancing Scheme, which was designed to help British firms trade. Another initiative that aims to help foreign firms buy from UK exporters has had just one successful application.

Rise of non-bank lending to European SMEs

The WSJ reports that loans by nonbank lenders to European companies more than tripled to 56 in the fourth quarter of 2013 from 18 in the first quarter, according to a recent study by Deloitte. According to the article, this new direct lending growth in Europe is dominated by U.S. funds that raised money in 2011 to invest in European assets in an expected fire sale by banks. However, the ECB offered cheap, emergency loans in December 2011 and February 2012, which enabled banks to cope with the crisis better than expected, and left the U.S. funds looking for alternative investment opportunities in Europe. They claim to have found a niche “serving as miniature banks, lending to small businesses across Europe.”

MPs urge support for Wheatley

The Independent (p54) reports that MPs on the Treasury Select Committee have warned privately that putting too much pressure on Financial Conduct Authority Chief Executive Martin Wheatley could create instability in the financial system. An analysis piece in the Weekend FT (£, p9) reports that the Chief Executive of the Prudential Regulation Authority Andrew Bailey “went ballistic” when the FCA’s briefing to a newspaper caused insurance companies’ share prices to fall.

The requirements of the OECD’s approved Common Reporting Standards (CRS) and the new EU Savings Directive (EUSD) standards are intended to be fully aligned, allowing for the development of a single process to comply with both regimes.

Businesses borrowing more to fund M&A

The Bank of England’s Credit Conditions survey reported that businesses are borrowing more to fund investment and new mergers and acquisitions in a further sign of returning economic confidence.  The Telegraph quotes BBA Chief Economist Richard Woolhouse saying: “Businesses are priming themselves to either acquire other companies or invest in new equipment or staff. This is good news and suggests the recovery is broadening out.”

Osborne criticises FCA’s “egregious error”

CityAM (p2) reports that during his appearance before the Treasury Select Committee yesterday Chancellor George Osborne criticised the Financial Conduct Authority (FCA) for making an “egregious error” for briefing a newspaper on its new insurance probe before telling the industry or the markets.  The FT (£, p2)reports that the FCA had informed the Association of British Insurers ahead of the announcement.

The Telegraph (pB4) reports that Osborne also said that he did not put pressure on the Co-op to acquire branches from Lloyds Banking Group.

FCA launches credit card probe

The FCA is set to launch a new enquiry into credit card providers according to the Mail (p2).  It will look at whether firms are selling suitable products to customers, whether the costs of credit are made clear at the outset, and how they deal with those who fall behind on repayments.

Responding to today’s Bank of England Credit Conditions survey, Richard Woolhouse, the BBA’s chief economist, said: “Today’s Credit Conditions survey shows demand for lending by businesses of all size is growing and the cost of borrowing remains low.

Paym service launched

The Mirror (p58) and the Times both write that the Payments Council has announced that people can now register for Paym, a service which offers a new way of sending and receiving payments directly to current accounts by using a mobile number. Payments Council Chief Executive Adrian Kamellard said: “Paym will give people a new option of quickly and securely paying someone.”

Financial watchdogs will cost £100 million more

The Times (£, p37) reports that regulating the banking industry will cost £100 million more a year. The combined funding for the PRA and the FCA will reach £673 million, £100 million more than before the financial watchdog was divided. Regulators said that this increase in fees reflected bigger responsibilities and an expanded workload. The watchdogs also argued that this was part of a “transition period” of creating the new regulator to the industry in five annual £14.8 million instalments.

However, the Telegraph (p5) writes that the PRA has ended its first 12 months of operating with a £20 million surplus and has decided to cut its budget by 4 per cent to GBP 227 million for 2014-2015.

CityAM (p2) reports that the FCA may have broken its own market abuse rules when it briefed the media about a pending investigation into the insurance sector last week and the FT (£, p2) writes that the FCA will be moving its headquarters from Canary Wharf to Stratford when its current lease expires.

Changes in interest rates proposed

The Times (£ p43) highlights Cristine Lagarde warning that the Eurozone faces mounting pressure from slowing inflation. The Head of the International Monetary Fund believes that although the global economy had stabilised, the recovery was still “too weak for comfort” and new risks are emerging including “prolonged lowflation”.

In addition, CityAM (p2) reports that economists have warned Mark Carney about the risks of not increasing interest rates, arguing that the British economy could “overheat” as a result.

Millions of customers are harnessing easy-to-use technology that allows you to bank wherever and whenever you please.

The International Monetary Fund (IMF) attracted a lot of attention yesterday morning following its estimate that UK banks benefit from a “too important to fail’ advantage of £15-£70 billion.

Osborne accuses the FCA over “damaging” leaks

The front page of the FT (£, p1) reveals George Osborne’s “fury” over the Financial Conduct Authority’s announcement of market sensitive probe into the insurance industry. In a letter to FCA Chairman John Griffith-Jones he said that the episode had been “damaging both to the FCA as an institution and to UK’s reputation for regulatory stability and competence”.

In the Independent (p 51) Chris Blackhurst remarks: “I cannot recall seeing a ministerial letter that is so pointed and leaving so little room for ambiguity and escape”.  In the Guardian (p 30) Nils Pratley warns that the incident “does not look good for the job prospects of Martin Wheatley, chief executive of the Financial Conduct Authority”.

PayM registration launches

The Independent (p48) reports that people are now able to register for the new mobile payments system PayM which launches on 29 April. For more information click here.

The seismic decline in the use of banks’ high street outlets is largely explained by a quiet, but dramatic, revolution in the way we spend, move and manage our money.

Three articles in a recent edition of the FT stuck out as epitomising society’s on-off relationship with banks, albeit more off than on in recent times, and the importance of Europe to the UK’s banking industry.

Lending to SMEs and spending confidence grow

The Telegraph (pB4) reports that the Bank of England’s Bankstats for February 2014 show “an encouraging improvement in the small and medium-sized business sector”. Lending to small businesses rose by £159 million compared to last month, while mortgage lending fell to its lowest rate since October 2013. The statistics also reveal that net lending to individuals increased by £2.3 billion suggesting rising confidence is encouraging increased borrowing. Responding to the Bankstats, BBA chief economist Richard Woolhouse said: “[Yesterday’s] figures show that gross lending to small and medium-sized enterprises (SMEs) has been growing for nearly a year now. New borrowing was 22.3 per cent higher for the latest three months of data compared to the same period a year earlier.”

FCA publishes 2014/2015 business plan

The Financial Conduct Authority (FCA) has published its business plan for the upcoming year. The plan includes details of an inquiry into the potential manipulation of benchmarks (FT). The review will take place later this year and assess whether banks have “learnt lessons” from the Libor controversy in other benchmarked markets, such as commodity prices and forex. Other initiatives include a review into banks’ treatment of fraud victims and a review of how organisations offering consumer credit treat struggling borrowers (Telegraph, pB4).

IMF report to say big banks still “too big to fail”

The International Monetary Fund’s (IMF) twice-yearly Global Financial Stability Report is set to highlight the failure of post-financial crisis reforms to solve the problem of “too big to fail”, according to the FT (£, p45). The IMF estimates that the largest banks in the UK receive an implicit subsidy of £12 – £70 billion, but acknowledges that implicit government-backing has fallen since 2009. Senior IMF analyst Gaston Gelos said: “Progress is under way but… the issue is still very much alive.”

BBA reports huge increase in use of banking technology

A number of papers report on the BBA’s The Way We Bank Now study which shows mobile banking use has doubled in just 12 months. BBA Chief Executive Anthony Browne writes in the Telegraph (pB2) that these innovations in technology “give customers greater flexibility than ever before about how they manage their money”. He stresses that although the increased use in technology has resulted in a decline in footfall, bank branches will “remain at the heart of banking services for years to come”, becoming used for “big life moments” such as arranging a mortgage.

The Telegraph Business section leads with the BBA’s report, highlighting that around 1,800 transactions are made every minute on smartphones. The Times (£, p37) notes that “branches would still be important, especially for mortgages”, whilst CityAM (p7) quotes Anthony Browne who states that there is a “groundswell of people who now find that banking on the move is fast, easy and convenient”. The Independent (p13) writes that 28 million debit and credit cards have been fitted with contactless technology, whilst 450 million texts for balances were sent in 2013.

More information on The Way We Bank can be found here.

Questions mount over potential CMA investigation into banking

CityAM (p3) understands that the Competition and Markets Authority (CMA) may choose not to launch its investigation into the banking sector “leaving the industry alone for a time to let new changes come into effect”. The paper adds that even if an investigation is launched, the CMA has a “range of other tools short of breaking up banks that could encourage more competition”. This comes after CMA Chief Executive Alex Chisholm told the Sunday Telegraph that any investigation leading to the potential forced sale of bank branches would take “18 months at least” and require “a ton of work” – longer than Labour leader Ed Miliband’s target of six months.

Export figures highlight importance of EU to UK

The FT (£, p2) cites a report by the Centre for Economic and Business Research which states that exports to EU countries help support 4.2 million jobs and are worth £211 billion to the UK economy. The EU’s demand for goods and services from the UK has risen steadily, with exports to other member states worth £3,500 per head. The Telegraph (pB4) reports that out of the 4.2m jobs, an estimated 3.1m were directly supported by exports to the European Union.

Millions of people, billions of transactions: Britain embraces a banking revolution Mobile phone banking transactions made by British customers have nearly doubled in a single year, new industry figures compiled by the BBA show today. Customers are now making more than 5.7million transactions a day using smart phones and other internet-enabled technology. The findings feature in the BBA’s opening Way…

EU adopts plans to support the long-term financing of the European economy

The European Commission has announced its growth agenda for the next five years (FT, £, p21). The Commission proposes to bolster Europe’s securitisation market, revive lending to SMEs, strengthen the hand of alternative finance providers and support infrastructure investment. EU Commissioner for Financial Services Michel Barnier said: “Europe has large long-term financing needs to finance sustainable growth”. Commenting on the proposed changes to securitisation, the BBA’s Simon Hills said: “We have to focus on what’s going to make a difference, and in my view that’s securitisation, which includes easing capital requirements on insurers who want to invest in securitisation.” (Reuters)

Bank of England to stress test banks’ exposure to housing market

The Times (£, p1) has splashed on reports that the Bank of England’s Financial Policy Committee is concerned about the impact of rising house prices, set to rise 8.5 per cent this year. The Bank plans to stress-test lenders later this year against “a housing market shock and a snap back in interest rates” but noted that British banks’ financial health had improved since its last report in November. The news follows the results of the Federal Reserve’s latest round of stress tests, which failed some European banks. The FT (£, p19) reports that the Fed’s conclusions put pressure on the European Central Bank ahead of its upcoming stress-tests.

Osborne and Schäuble set out their vision for the EU

The British Chancellor and German finance minister have written a joint op-ed in today’s FT (£, p13) arguing that both countries have promoted substantial reforms to financial services and outline their support for a number of initiatives, such as the completion of the single market – especially in services. “Looking ahead, we can create a flexible and outward-looking EU”. The FT (£, p1) also reports that Berlin has for the first time declared that the EU must ensure that the UK is legally protected from closer eurozone integration.

British banks pay 71 per cent tax on profits

New research by KPMG shows that the biggest UK banks paid 71 per cent of their combined profits in taxes last year, with 13 per cent on the bank levy (Telegraph, pB4). KPMG’s tax specialist Tom Aston said: “Our figures show the levy is now draining profits out of banks and undermining efforts to strengthen their capital base” (CityAM, p1).

Following proposed changes in the bank levy announced in last week Budget, Shadow Financial Secretary to the Treasury Cathy Jamieson said:  “George Osborne must come clean and explain what impact this banding will have on revenues from the bank levy in future years”. A spokesman for the Treasury said: “The Government has no plans to reduce the amount of money the levy raises” (Telegraph, pB4).

Brussels to ease rules on securitisation

European regulators are planning to halve the capital requirements on asset-backed securities in a bid to boost lending to small businesses. The capital requirements would be sliced from 4.3 per cent to 2.1 per cent; these changes of the Solvency II rules will only affect Type 1 securities. This move is part of a wider strategy to support financing to EU’s businesses (FT £, p9).

US accused of influencing British banks

Senior politicians in Westminster yesterday accused US banks of influencing British peers into refusing legal exports to Iran, costing British companies sales. Former foreign secretary Jack Straw said: “the pressure on [British] banks is intense” and that “the impact…of the US is discriminatory, especially against UK based financial institutions” (FT £, p2).

Mortgage lending up

Many of the newspapers including the Guardian (p27) reported on the BBA’s High Street Lending figures, published yesterday.  The figures showed that mortgage lending in February was up 47 per cent on the same time last year.

Commenting on the statistics BBA Chief Economist Richard Woolhouse said:

“These encouraging figures show that the demand for finance is broadening out across both the consumer and commercial markets, with mortgage approvals and lending to many types of business on the up.” See the full stats and press release here.

More of Lloyds Banking Group to become private

The Government is to sell £5.35 billion of its shares in Lloyds, according to the frontpage of the FT (£, p1). The Telegraph (p1) quotes Lloyds chief executive, Antonion Horta-Osorio: “I am pleased that the Government intends to sell a further stake in Lloyds Banking Group and allow taxpayers to get more of their money back. I believe this reflects the hard work undertaken over the last three years to make Lloyds a safe and profitable bank that is focused on helping Britain prosper.”

Bank Levy

In the FT (£, p2) there is speculation over possible changes to the bank levy. The article says that the “government may shift the burden of its bank tax on to foreign institutions and away from the UK retail banks” and goes on to reference the BBA’s recent Budget submission which argues that the levy is “inconsistent with the Government’s desire for the UK to have a competitive, stable and predictable tax regime.”

On the 24 March 2014 Control Risks’ Ukraine expert Steven Eke briefed BBA members on the situation in the Crimea and its implications.

Russia suspended from G8 as Western sanctions ratchet up 

The leaders of the G7 economies are to boycott a proposed G8 meeting with Russia in Sochi and meet in Brussels instead in a move to isolate the Russian President Vladimir Putin, according to the Guardian (p1). Russia’s deputy economy minister expects the threat of sanctions to have caused £50 billion of capital to flow out of Russia in the first quarter of 2014, writes the FT (£, p1). The Times examines the impact of restrictions on the £14 billion trade between Russia and UK (£, p40).

Businesses embrace new wave of funding

A supplement in today’s Times (£) looks at funding options for small and medium-sized enterprises in Britain. The leading article cites research by the British Bankers’ Association showing that £7.1 billion of new borrowing to SMEs was approved in the last quarter of 2013, a 26 per cent rise on the same period the year before. BDRC Continental research shows that seven out of ten businesses applying for bank loans are successful, but many business owners are not seeking bank finance.

National Audit Office study shows “inexperienced” regulatory staff

A report published today by the National Audit Office has stressed the important of effective oversight of the financial sector after investigating the level of experience and performance at City regulators – the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) (Independent, p50). The research suggests that a third of staff at the FCA have less than two years’ experience while a quarter of the PRA’s “top performers” have resigned or retired. A FCA spokesperson said the regulator was focused on creating the “right team” citing recent high-profile hires and the broadening of their remit. Fees from regulated firms rose 24 per cent last year to £664 million.

New mortgage lending and approvals for buying new homes are around 50% higher than a year ago.

With the European Parliament elections less than 100 days away, more and more attention is being given to the question of what the composition of this new Parliament will be, and what this will mean for the legislative work  during the next term.

Government launches scheme to guarantee loans to small businesses

The FT (£, p4) writes that the Government will launch a “wholesale guarantee scheme” which will share the burden of losses on some small business loans. The scheme, run through the British Business Bank, aims to make it easier and cheaper for lenders to offer finance to SMEs by reducing the amount of capital banks have to hold against their SME loans. Banks will have to absorb initial losses up to an agreed threshold in order to avoid excessive risk-taking.

Warning shots of a banking exodus

The Sunday Telegraph reports that Britain’s leading fund managers have warned that London risks losing its place as Europe’s financial centre if investment banks fall victim of public anger over bonuses. Gerry Grimstone, chairman of TheCityUK and Standard Life, told the paper: “If Britain wants to be part of the global financial services sector it has to have the people within it that can run these businesses.” Financial News states that any banking exodus will be gradual so that “politicians won’t notice it’s happening – until it has”.

Help to Buy boosts housing market

The Guardian (p12) reports on figures released by the Government which state that 17,000 homes have been bought under the Help to Buy scheme, with 80 per cent of those bought by first-time buyers. The Independent on Sunday addressed concerns that the scheme is driving up prices, arguing: “Help to Buy had such a dramatic initial impact due to pent-up demand from those previously shut out of the property market, and that this clamour may now be beginning to fade.” However, the Labour Party warned that “rising demand must be met with increased housing supply for people to afford it”. (BBC News)

EU Finance Ministers and the European Commission should prioritise the establishment of an EU VAT web portal to help businesses.

The European Banking Authority’s proposed common regulatory reporting framework (COREP) aims to increase the harmonisation of reporting across member states.

Deal on Banking Union

Many of the papers reported yesterday’s new agreement on European banking union, meaning that the ECB will have the power to decide when a bank has failed and it should be resolved through a new Single Resolution Board (Telegraph, p4). Those in banking union countries will also contribute to a “common rescue fund” – the Single Resolution Mechanism (SRM) – that will see Eurozone banks build up a fund of €55bn (£45.9bn). (City AM, p5).

Further speculation over interest rates

The Times (£,p39) writes today that Martin Weale, an external member of the Monetary Policy Committee, has indicated that interest rates may “rise sooner than some of his colleagues have pencilled in”. Mr Weale said that spare capacity in the economy is likely to be 0.9 per cent of GDP, which is lower than the Banks’s official forecasts of 1.5 per cent which could lead economists to believe capacity is running out, prompting the need for an interest rate rise to control inflation.

Budget business incentives

The Institute for Fiscal Studies has criticised the Budget, saying that the policies announced fail to provide long term investment incentives (Telegraph, pB1). Helen Miller of the IFS is quoted: “The really unwelcome theme to these [measures] is many are temporary in nature and frequently changed. That adds uncertainty and fundamentally detracts from the positive effects that they’re trying to have on investment.”

The article does go on to report how business leaders largely praised measures to double UK Export Finance’s direct lending programme to £3bn and cut the interest rates it charges in half.

Budget 2014

The FT (£ p1) labelled yesterday’s Budget: “The biggest pensions revolution for almost a century”. Help for savers was placed at the core of George Osborne’s statement, with desires to make it easier and cheaper to withdraw money from pension pots. The Chancellor also changed the limit for tax-free ISAs, with anyone now able to save £15,000 annually from July onwards. The Chancellor said: “The message from this Budget is this: you have earned it, you have saved it, and this Government is on your side” (Telegraph, p1).

A series of measures were announced to stimulate investment and promote the economic recovery. The Government is to publish a consultation on legislation for banks to refer small and medium-sized enterprises that have been turned down for finance to alternative funders (Times, p10 & p11).

Responding to the Budget, BBA Chief Executive Anthony Browne praised the tailwind for export finance, saying: “We are pleased that the Government has listened and applaud the aim to give the UK one of the most competitive export financing regime in the world” (Scotsman, p4). However, the BBA expressed its concerns after Budget documents unveiled legislation to require banks to share information on their small business customers with other lenders through credit reference agencies. Many banks already do this and any [new] legislation should not cut across those relationships (FT, £ p16).

For further information about the BBA’s view read Anthony Browne’s blog here and BBA Chief Economist Richard Woolhouse’s blog here.

BBA supports the Business Banking Insight programme      

The programme aims at discovering what micro, small and medium-sized businesses think of banking services. Business Banking Insight is carried out by the Federation of Small Businesses and the British Chamber of Commerce and supported by Treasury. The programme involves 5,000 businesses that will examine the performance of banks and will publish the results on a website in May. The BBA is part of the advisory group that supports this programme (FT, £ p26).