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The BBA Brief will take a break for the Christmas period after today, and will return to your inboxes on Monday 9 January 2017. We wish you a restful Christmas and a happy New Year.
David Davis favoured EU asking for transition
The FT (£, online only) exclusively reports comments made by the Secretary of State for Exiting the European Union David Davis last month, in a meeting with the City of London Corporation on 15 November, in which he is reported to have said that he was “not really interested” in a transitional deal for the UK’s exit from the European Union. The leaked memo stated however, that a “sudden” departure could compromise the EU’s financial stability so, in order to “be kind” to the EU, Mr Davis is reported to be “more in favour” of transition if the EU were to ask for it. Mr Davis has reportedly been more receptive to a transitional arrangement to ensure a smooth Brexit for Britain’s businesses since that meeting.
Report calls for five-year cover from EU law in Brexit transition
Reuters (online only) reports that a leaked document drawn up by law firms, argues for banks to be subject to EU laws for up to five years after Brexit to allow the industry time to adapt. The report, which focuses on the legalities of an interim agreement for financial services, says that “transitional arrangements are likely to be essential” and “important in order to avoid potential damage to the ‘real economy’ that is reliant upon uninterrupted access to financial services”. The document also suggests that the European Court of Justice would most likely have to govern any disagreements that arise during the transition.
European Central Bank to scale back quantitative easing
The Times (£, p45) reports that Mario Draghi, President of the ECB, has taken the decision to extend the Bank’s bond-buying programme by nine months to the end of 2017, but to reduce the value of bonds it buys every month from €80 billion to €60 billion. Draghi said that the Bank would remain active on markets since “uncertainty prevails everywhere”. The FT (£, p1) also reports speculation that the decision to lower the rate of purchases could mean a “tapering” of the quantitative easing programme. However, Draghi rejected this claim, saying: “That’s not been discussed; it was not even on the table.”
Major banks are in the process of moving operations to Paris
BBC Newsnight (online only) last night and BBC Radio 4’s Today Programme reported that some large international banks are in advanced stages of planning to move some operations from London to Paris. Benoît de Juvigny, Secretary General of the AMF, said large banks have undertaken the due diligence needed to set up a subsidiary in Paris. ITV News (online only) reports that the French regulatory department was likely to expand in response to the expected influx of requests from other financial services wanting to move certain operations to La Défense, the city’s financial centre, in case the UK is not offered an equivalent to passporting rights post-Brexit.
MPs vote to support the Government’s timeline on Brexit
All papers report that MPs last night voted in favour of the Government’s timeline on Brexit (Telegraph p1, FT £ p1, the i p1). The non-binding vote was carried by 448 votes to 75, a majority of 373. This vote follows the Prime Minister’s plan to be more transparent in her Brexit negotiations, which Labour’s shadow Brexit Secretary Keir Starmer said are likely to include plans for the Single Market and Europe’s Customs Union. When asked about whether the UK would remain in the Customs Union. The Secretary of State for Exiting the European Union, David Davis, suggested that there are still many options for the UK to consider, noting that “This is not a binary option. There are about four different possibilities and we are still assessing that… I will notify parliament in detail when we come to the decision on Customs Union.” David Davis also used his remarks in parliament to reiterate that it was “inconceivable” that MPs would not get a vote on the final Brexit deal (Times, £, p4-5).
Ministers consider a second Scottish Referendum
The Times (online only) reports that UK Ministers are considering a deal to allow Scottish First Minister Nicola Sturgeon to hold a second Scottish independence referendum. However, the paper reports that Ministers will make the timing of the referendum a “red line” in any agreement, arguing that the Brexit deal must be secured first so that voters in Scotland will know what they are voting on.
Hamish Thomas, EMEIA Payments Leader at EY, blogs about the way payments are changing under PSD2.
Theresa May agrees to clarity on Brexit plans
Most papers report that the Prime Minister Theresa May will reveal her strategy for Brexit prior to triggering Article 50 (City AM, p1and FT p1). Conservative MP Anna Soubry said: “British businesses want a plan, because they need that certainty. So we’re moving in the right direction.” The Guardian (p9) reports that the decision comes as Michel Barnier, the European Union’s chief negotiator, proposes an October 2018 deadline on negotiations for the UK leaving the EU.
FCA targets risky investment products
Papers also widely report (FT, £ p19 and Telegraph B1) that the FCA has announced plans to increase regulation on spread-betting investment products which are “akin to gambling,” because, it says, retail clients might not understand the risks. The Guardian (p21) says that the industry lost £1.5 billion in stock market value in reaction to the news.
Increased charges for withdrawing money on credit cards
The Daily Mail (p49) reports on increased fees for consumers who, according to official figures, are collectively withdrawing up to £12 million per day from ATMs. The paper also argues that, in some cases, interest rates for repaying credit are nearing 30%. This comes at a time when household debt in the UK is growing at its fastest rate in ten years, and credit card cash withdrawals continue to grow. It quotes the BBA as saying that in September, customers took out £400 million in the last year, compared to £347 million the year before.
Welcome to my newsletter. Christmas is fast approaching, but there is still a huge amount of work to be done before the City empties for the festive season. The shape of the UK’s new relationship with the EU raises a wide range of issues for the banking industry and the BBA is working with banks, policymakers and regulators to ensure an orderly transition to life outside the European Union. Achieving the best outcome for customers, businesses and the UK economy is a top priority.
Keiron Dalton, Senior Director of Customer Strategy and Innovation at Aspect Software, blogs about the top five warning signs for which you should be on the lookout to help protect yourself against mobile banking fraud.
Government working on a “smooth and orderly” Brexit for the City
The FT (£, p1) reports that Chancellor Philip Hammond and Secretary of State for Exiting the European Union David Davis yesterday promised financial services representatives a “smooth and orderly transition” when Britain leaves the EU. Mark Carney, Governor of the Bank of England, on Monday repeated his view that it was “absolutely desirable” for financial services firms to be given a period of time to adjust and “to restructure after the deal is agreed with the EU.” David Davis, who had previously expressed scepticism about granting UK banks passporting rights, reportedly seemed “not dismissive.” The Telegraph (B1) also reports that Ministers are keen to balance the needs of the financial services sector against others and avoid any perception of “impartial treatment.”
Financial services contribute £71.4bn in tax
The front page of City AM reports that the UK’s financial services firms, including the City’s banks, paid £71.4bn in taxes to HM Treasury for the year to 31 March according to a study published today by PwC and the City of London Corporation. According to the i (p43, print only) this accounts for 11.5 per cent of the UK’s total tax receipts. A key component of this figure comes from a BBA report (also in collaboration with PwC) last month stating that £34.2bn of the total tax paid by financial services total is paid by the banking sector.
Mark Carney on the negative effects of globalisation
The Guardian (p24) reports that Governor of the Bank of England Mark Carney yesterday spoke in Liverpool about the sense of “isolation and detachment” felt by many people in the UK caused by “uneven distribution in gains in global trade and technology.” The FT (£, online only) reports how he responded to the Bank of England’s decision to hold interest rates at a historic low and defended the Bank’s monetary policy which “has been keeping the patient alive, creating the possibility of a lasting cure through fiscal and structural operations.”
Eight of the leading investment and pension trade associations have joined forces to investigate ways to improve the process of transferring pension and investment assets. Following a review process, a consultation paper has been published today and is seeking input from all stakeholders.
Peter Tyler, BBA Senior Policy Director for Retail Banking, blogs about new industry rules for the savings market that will help customers review their savings regularly and to shop around for better deals.
One in five over-55s is target for fraud
The Telegraph (p10, print only) reports that according to research from the Financial Conduct Authority, more than one in five over-55s and one in three over-75s, suspect they have been targeted by investment fraudsters in the past three years. The FCA strongly advises over-55s to check that investment “opportunities” are legitimate before committing. Mark Steward, Director of Enforcement at the FCA, said: “Fraudsters are targeting our growing over-55 population because they are more likely to have money to invest…Be sceptical. Be suspicious. Ask questions and get answers that you can verify” (Daily Mail p24).
Boris Johnson rejects paying for EU single market access
Following Exiting the European Union Secretary of State David Davis’ comments last Thursday that the UK Government would consider contributing to the EU budget in exchange for EU market access, the i (p4, print only) reports that Foreign Secretary Boris Johnson has dismissed this idea. The Telegraph (p4) reports Johnson as telling BBC One’s Andrew Marr that David Davis is considering EU contributions for single market access, but that “there is no reason why payments to the EU should be large.” The Times (£, p1) reports that other ministers support Johnson’s view, including Trade Secretary Liam Fox.
Mortgage loan-to-income ratios hit record high
The Sunday Telegraph (p.2) reports that homeowners are accruing record-high levels of mortgage debt despite the Bank of England’s attempts to limit the number of loans that banks can make to home buyers who want a mortgage 4.5 times bigger than their incomes. A Bank of England study of the most indebted 50pc of borrowers found the average mortgage is 4.1 times a homeowner’s income, the highest level on record and up from 3.6 times in 2009. Mark Carney, the Bank’s Governor, said “it was important to keep the borrowing restrictions in place to try to stop over-indebtedness becoming a problem.”
Mike Conroy, BBA Executive Director, Corporate and Commercial Banking, blogs about the importance of the UK’s small businesses and why Small Business Saturday matters.
Last week the CPB Netherlands Bureau quietly released its Trade Monitor for November 2016. It showed that world trade had declined by 0.4% in September. The OECD also published a report which, while supporting the infrastructure plans of President Elect Trump, was equally as robust in its support of free trade and globalisation. It forecasts an increase in global growth…
UK Government could pay for access to single market
The FT (£, p1) reports that the UK Government has acknowledged the possibility of the UK continuing to make a contribution to the EU budget in exchange for access to the single market. Exiting the European Union Secretary David Davis said “the major criteria here is that we get the best possible access for goods and services to the European market.” The Chancellor Philip Hammond also said “I think David Davis is absolutely right not to rule out the possibility that we might want to contribute in some way.” The Guardian (p2) reports that German MEP Reimer Böge, a former chair of the European Parliament’s budgets committee, has estimated the UK’s contribution at £4.2bn. The Telegraph (B1) and the FT (£, p28) report that the pound has risen to a three-month high following the news.
Bank card details are easily acquired by criminals
The Telegraph (p15, print only) and the Times (£, p6) report that fraudsters can work out the card number, expiry date and security code for a Visa debit or credit card in six seconds using “distributed guessing attack.” The criminals use a method called “distributed guessing attack” to electronically enter hundreds of combinations simultaneously. The Times article reports that Visa, working closely with card issuers and acquirers to make it very difficult to obtain and use data illegally, said “for consumers, the most important thing to remember is that if their card number is used fraudulently, the cardholder is protected from liability.”
Branch access users offered lower interest on cash savings
City AM (p10) reports that banks are offering higher interest rates for online access to savings accounts. The FCA released the data as new rules come into force for UK banks to provide easier to understand information on interest rates, so customers can make better judgements when opening accounts. The Daily Mail (p8) reported that older savers are most impacted by the lower rates offered in branches and quoted a BBA spokesperson:
“The needs of vulnerable people and the cost of providing account access are important factors which providers consider when competing for business. With the Bank of England Base Rate at a record low of 0.25% the environment has not been easy for many customers to bear. While this has been good news for borrowers it has also led to tough times for many savers. We always encourage customers to shop around so that they get the best deal.”
Mike Conroy, the BBA’s Managing Director for Business Finance, said:
“The BBA’s latest data show that £5.6bn of lending was approved for SMEs in the third quarter. So far this year we have continued to see a modest expansion in net lending.
“Application approval rates remain very healthy and over 80% of businesses are getting finance when they apply. But there is clearly lower demand for finance from businesses overall than in the same quarter a year ago. This subdued demand reflects reduced or postponed investment plans and continued deposit holding, particularly by smaller firms, as they operate within an uncertain trading environment. However, we are seeing regional differences. In Scotland, Wales, Yorkshire and the North West, demand for credit has increased moderately compared to the same period last year.”
Mark Carney warns EU on loss of City services
Following Mario Draghi’s comments to a European Parliament Committee on Monday that Britain will first and foremost feel the pain of Brexit, the FT (p2) and the i (p1, print only) report on the Governor of the Bank of England’s response that the EU would lose “crucial” financial services if it denied the UK European business. Carney said “The UK is effectively the investment banker for Europe. More than half the equity and debt raised (for European governments and business) is raised in the UK, quite often from investors based in the United Kingdom” (the Guardian p28).
Banks take action following stress test results
All papers, including the Telegraph (B1), report on the results of the Bank of England’s stress tests yesterday measuring banks’ resilience in hypothetical adverse global financial conditions. They report that all banks that originally did not meet their hurdle rate have reassessed their capital plans to address the situation. The FT (p21, print only) reports that for the first time next year banks will be subjected to additional exploratory stress tests measuring capital strength against “slow-burn” issues, for example a seven-year period against “a weak global supply growth,” to probe business model resilience.
Rate rise could cause severe problems for households
The Times (p44, print only) reports that the Bank of England has warned that households could face huge debts if unemployment and interest rates rise. “Consumers are drawing down savings and borrowing for the first time since the crisis”, the Bank said in its Financial Stability Report yesterday. However, City AM (p8) reports that the FCA is considering relaxing certain mortgage lending rules, allowing consumers access larger loans based on their income.
Simon Hills, Executive Director, Prudential Capital and Risk blogs about the Bank of England stress test results.
Financing Growth has been produced to help small- to medium-sized businesses identify some of the different finance options that may be available to expand their business, including information, tips and ideas about products from banks, alternative funders, commercial specialists and the Government to help you as you plan for the future.
Five Degrees’ Peter-Jan Van De Venn sheds light on the impact of PSD2 regulation
Commenting on the results of the Bank of England 2016 stress test, Simon Hills, BBA Executive Director of Prudential Capital and Risk, said:
“The results of the Bank of England stress test – the most rigorous to date – released this morning confirm that, following steps agreed by some of the banks, the seven financial institutions tested would have sufficient capital to withstand a severe and prolonged global downturn. They are also strong enough to continue to support businesses and consumers throughout a potential future stress.
Bank of England publishes stress tests results
Sky News, BBC and the Guardian (online only), report on the Bank of England’s results of its annual test of banks’ resilience in hypothetical adverse financial conditions. Measuring the balance sheet strength of seven of the UK’s biggest banks, it modelled how banks would cope in a situation in which UK GDP shrinks by 4.3% amid a worldwide recession, unemployment adds 4.5 percentage points, and house prices plunge by 31%. The Financial Policy Committee has judged that, as a consequence of the stress test, the UK banking system is, in aggregate, capitalised to support the real economy even under a broad, severe and synchronised stress scenario.
UK must abide by EU rules to remain UK financial centre
The FT (£, p9) reports that the City of London risks losing its role as the continent’s premier financial centre unless the UK agrees to fully apply EU regulations post-Brexit. Dutch Finance Minister Jeroen Dijsselbloem said to members of the European Parliament in Brussels “we can’t allow the financial service centre for Europe and the eurozone to be outside Europe and the eurozone, and to go its own way in terms of rules and regulation requirements.”
FCA looks to increase regulation on subprime credit industry
City AM (p8) reports that the FCA launched a consultation yesterday calling for evidence on products where the cost to consumers might outweigh the benefits, including doorstep lending, catalogue credit, rent-to-own agreements, and, according to the Times (£, p49) and Telegraph (B3), unarranged overdrafts and high-interest payday lenders. It reports FCA CEO Andrew Bailey as saying “we have already taken many steps to address the risk of consumer harm by putting in place new rules for high-cost, short-term credit firms and taking action against non-compliance across all credit markets.”
ECB argues Europe should not weaken the Single Market for the UK’s benefit
City AM (p4) reports that Mario Draghi, the ECB President, has argued that Europe should not weaken the Single Market for the UK’s benefit, arguing that it is “imperative that its integrity and the homogeneity of rules and their enforcement will be preserved”. Draghi has said “there should be no backward steps concerning the regulatory, supervisory and oversight framework”. The FT (£, p1) also reports that the ECB president has warned Britain rather than the Eurozone will “first and foremost” feel the pain of Brexit, as he called for greater clarity over the negotiation process.
Leaked memo allegedly detailing Britain’s Brexit negotiating position
The Telegraph reports on a handwritten memo allegedly detailing Britain’s negotiating position in regards to Brexit. This story which was also covered by The FT (£, p2) and The Times (£, p1), claims that the photographed memo – carried by an aide to Conservative Party vice-chairman Mark Field MP after a meeting in No 10 – details Britain’s position as “have [your] cake and eat it” and that it is “unlikely” that Britain will be given the chance to remain in the Single Market after it leaves the EU. A government spokesperson denied this document represented the UK’s position ( The Guardian, p1, 7).
Fresh legal challenge to the Government on the Single Market
The Times (£, p4) reports on a fresh legal challenge the government is facing over whether the UK should remain inside the single market post Brexit. Cross-party think tank British Influence has taken to the courts to argue that leaving the EU does not automatically take Britain out of the European Economic Area (EEA), in which the single market operates. Their lawyers will argue that the decision to leave must be decided separately from any vote to trigger Article 50. However, the article also reports that the government insists EEA membership would end automatically when the UK leaves the EU because it had joined in its capacity as a member.
Carney pushes for transitional agreement
The Sunday Times reports that the Bank of England Governor, Mark Carney, is understood to have told City executives that the UK should retain access to the single market for at least two years after leaving they EU, to give continuity to businesses and to allow them to prepare for the withdrawal deal. The Daily Telegraph (p B1) reports that Carney is also set to warn the European Commission and heads of the EU’s top financial services bodies that a transitional agreement would be in both the UK and EU’s interests. It also notes, along with The Times (£, p11), that the British Bankers’ Association has already written to the Chancellor to call for “agreement on transitional arrangements … and confirmation of these arrangements as soon as possible”.
Banks prepare for stress tests results
The Sunday Telegraph reports that major UK banks are preparing for the results of the latest round of Bank of England stress tests, which are due to be released on Wednesday and have been considered the toughest tests yet. The results are likely to expose the firms that are most vulnerable if there was a future financial crisis. The Guardian (p22) and City AM (p13) also report on banks bracing themselves for the upcoming results.
Greater scrutiny of executive pay
The FT (£, p2) reports that Theresa May will fulfil her pledge to reform executive pay and will publish a green paper tomorrow which sets out proposals to strengthen corporate governance. Andy Haldane, the Bank of England’s Chief Economist also writes in the FT (£, p12) that “issues of corporate governance, including around executive pay, are matters of legitimate public interest, including for the bank in pursuing its statutory objectives of price and financial stability”. The Guardian (p21) reports on the IoD Director, Simon Walker, addressing the High Pay Centre in London later today; he will say it would be foolish for senior executives to attempt to defend high pay and that unless they can show they are listening to the public’s concern, the government will clamp down on excess.
The BBA’s Chief Economist Rebecca Harding blogs about the role of political influence on financial stability ahead of Bank of England’s Financial Stability Report on Thursday.
BBA publishes High Street Banking data
Reuters reports that new figures published by the BBA show that consumer credit is growing at seven per cent, the fastest rate since November 2006. The BBA’s High Street Banking statistics also showed that mortgage approvals for house purchase climbed to 40,851 last month, up from 38,690 in September. Rebecca Harding, BBA Chief Economist, said: “Mortgage approvals ticked up a little October. There has only been a relatively modest increase in activity since the Bank of England cut rates in August.” The Telegraph (p1) reports that low interest rates combined with high consumer confidence is encouraging debt-fuelled spending.
EU banking reform set to divide Germany and France
The FT (£, p7) reports that Germany and France are divided over a wide-ranging package of reforms to European Union banking regulations announced earlier this week. The newspaper states that policymakers in Berlin want to ensure supervisors are able to demand capital buffers – or total loss absorbing capacity (TLAC) – that are above agreed international minimum standards. Germany’s position on TLAC is reported to clash with the view in France and Italy, which want to ensure European financial institutions are not put at a competitive disadvantage by the new rules.
ECB warns that political uncertainty is a risk to Europe’s markets
CityAM (p1) and The Times (£, p57) report that the ECB has warned that the election of Donald Trump as US president has heightened risks to European financial stability, whilst also recognising the uncertainty around upcoming political events in Europe, such as the French presidential election next year. “This risk has been present for quite some time but it has been aggravated recently in particular after the US elections,” said the ECB’s Vice President, Vitor Constancio. The FT (£, p7) also reports that Constancio has raised concerns about the impact of the new US presidency on trade, he said “We are in a new phase of weaker world trade […] If, on top of that, there would be a wave of protectionist measures, world trade and world growth would suffer.”
EU publishes wide-ranging package of financial reforms
The FT (£, online only) reports the European Commission has unveiled a raft of proposals that could lead to significant changes to existing banking regulations. The wide-ranging package encompasses adjustments to banker bonus rules as well as plans to require non-European Union banks to set up holding companies when operating in Europe. The European Commission has elected to modify agreements reached by the Basel Committee rather than transpose them directly into law. Valdis Dombrovskis, the EU Commissioner on financial services, said: “We have put forward new risk reduction proposals that build on the agreed global standards while taking into account the specificities of the European banking sector” (Reuters).
Chancellor delivers Autumn Statement
Philip Hammond has insisted that the UK economy is “resilient” despite official forecasts showing a significant deterioration in the public finances (BBC News). The growth forecast for next year was cut by the Office for Budget Responsibility to 1.4 per cent in 2017, down from the 2.2 per cent predicted in March ahead of the EU referendum. The Daily Telegraph (p1) reports that a number of Eurosceptic ministers have attacked the OBR for being overly pessimistic about the impact of Brexit. Meanwhile, the Chancellor also abolished the Autumn Statement. Instead, the UK will hold annual budgets in Autumn from 2017 and Spring fiscal statements. John McDonnell, the Shadow Chancellor, said: “This is a new Conservative leadership with no answers to the challenges facing our country and no vision to secure our future prosperity” (Times, £, p1).
S&P warns over impact of Brexit and Trump on banking sector
The Guardian (online only) reports that credit ratings agency S&P has warned that Brexit, low interest rates, Donald Trump’s election as US President and a slowdown in Chinese economic growth pose significant risks to the global banking sector. S&P said: “Weaker prospects for earnings growth globally, potential risks related to the UK’s referendum vote to leave the EU, and more generally increased political risks are constraining factors for bank ratings in 2017.” It added that more than half of the largest global banking systems face negative pressure.
The BBA’s Chief Economist Rebecca Harding blogs about the latest High Street Banking statistics.
Dr Rebecca Harding, BBA Chief Economist, said:
“Consumer credit is now growing at its fastest rate since November 2006, reflecting strong retail sales growth. Consumer confidence remains robust as borrowers take advantage of record low interest rates.
“Mortgage approvals ticked up a little October. There has only been a relatively modest increase in activity since the Bank of England cut rates in August.
“Finally, there was a slight increase in business borrowing in October but this was driven by a one-off factor and will probably unwind next month. However, businesses are increasingly going back to capital markets as a means to raise funding. They also continue to hold cash deposits, suggesting that they are building up cash reserves for ready access to resources should the need arise.”
Commenting on today’s Autumn Statement, Anthony Browne, CEO of the BBA said:
“We welcome the Chancellor’s efforts to give business greater clarity and certainty in planning and investment for the long term. This is particularly welcome in relation to tax matters.
“The move to a single major fiscal event a year in the autumn is also welcome, so that any changes to the tax system can be made well in advance of them taking effect.”
The BBA’s Chief Economist Rebecca Harding blogs about key points from the Chancellor’s Autumn Statement.
EU to outline first financial reforms since Brexit vote
The FT (£, p8) reports that Brussels will today outline proposals for new financial reforms for the first time since the UK voted to leave the European Union in June. The newspaper reports that the EU is expected to raise entry barriers for foreign companies operating in the market, potentially damaging the competitiveness of the UK as a financial centre. Dirk Schoenmaker of the Bruegel think-tank said: “The internal market is rife with location rules. If you are inside you don’t see them. It is when you are out that you feel the pain. And these location rules will be reinforced. There is no love lost with the UK on financial services. The positions are hardening.”
Davis meets with EU Brexit negotiator
Brexit Secretary David Davis has described a meeting with the European Parliament’s chief negotiator Guy Verhofstadt as a “good start” (BBC News). The meeting was designed to lay the ground for formal negotiations once Article 50 had been triggered, with the focus on structures and how both sides propose to approach the Brexit talks. Mr Verhofstadt said: “In the meeting I repeated what are, for us, essential key points. That is, that… these negotiations, in the interest of everybody, need to be concluded before the European elections.” The FT (£, p2) reports Manfred Weber, Chairman of the centre-right European People’s party, claimed Mr Davis told him in a separate meeting that Britain wanted to stay in the single market.
Chancellor to deliver Autumn Statement
There is widespread coverage trailing Philip Hammond’s first major financial statement as Chancellor. The Daily Telegraph (p1) reports that Mr Hammond will use his inaugural Autumn Statement to increase the national living wage, invest in delivering 40,000 affordable homes, and ease welfare cuts proposed by his predecessor George Osborne. Paul Johnson, the Director of the Institute for Fiscal Studies, said: “The Chancellor has got a very difficult task. For sure the economic numbers are going to get worse – he’s going to be borrowing more than he wanted to and he is going to be very uncertain about exactly where we will be in four or five years’ time” (BBC News).
[Check against delivery] My Lord Mayor, Chair, My Lords, Ministers, Sheriffs, Ladies and Gentlemen. Welcome to the British Bankers’ Association Annual Dinner of 2016. And a particular welcome to our guest speaker, Greg Clark. Greg, you should be assured that attending BBA events can bring great fortune. Philip Hammond was a guest speaker at our summer reception as Foreign Secretary.…
Prime Minister hints at Brexit transition arrangements
Theresa May has stated that the Government is working to avoid a “cliff edge” for businesses when the UK leaves the European Union (FT, £, p2). Speaking at the CBI annual conference, the Prime Minister hinted at a potential transitional arrangement by declaring “people don’t want a cliff edge, they want to know how things are going to go forward.” She added: “That will be part of the work that we do in terms of the negotiation that we are undertaking with the European Union” (Guardian, p7).
BBA hosts Mansion House annual dinner
City AM (p1) reports that Anthony Browne, Chief Executive of the BBA, has declared that the “the time for grieving is over” following the EU referendum. Speaking at the BBA’s annual dinner at Mansion House last night, Mr Browne said: “We should stop looking back, roll up our sleeves and look to the future […] Financial services in the UK – with the City at its heart – have weathered many changes over the years. People are always quick to write us off.” He also highlighted how the corporation tax surcharge meant that the Prime Minister’s pledge to ensure the UK has the lowest corporation tax in the G20 would not apply to the banking sector.
US banks face higher costs after tit-for-tat Brussels blow
The FT (£, p1) reports that Brussels is considering tightening regulatory oversight over overseas banks operating in the EU. The European Commission is today expected to outline proposals that reflect US “intermediate holding company” rules that ringfence foreign bank capital. The EU complained of “protectionism” when the US introduced its rules in 2014. If implemented, the proposals would force US banks to have additional capital and liquidity in the EU so their subsidiaries can better withstand a crisis and be separately wound up if needed by European authorities.
Prime Minister hints at corporation tax cuts
The Daily Telegraph (p1) reports that the Prime Minister will today pledge to cut Britain’s corporation tax to the lowest in the G20. In a speech at the Confederation of British Industry annual conference, Theresa May will suggest that the Government will cut corporation tax further and faster than expected, potentially lowering it below the 15 per cent rate pledged by Donald Trump ahead of the US presidential election. The Prime Minister is also expected to water down plans for workers to be installed on company boards. CBI’s Director-General Carolyn Fairbairn backed proposals to have “the voice of workers heard more clearly in the board room” (BBC News).
Spotlight on Autumn Statement
The Chancellor has acknowledged he is facing a “sharp challenge” ahead of Brexit and that he needs “headroom” in the public finances to deal with the economic impact of leaving the EU (Guardian, p6). Speaking on the Andrew Marr Show yesterday, Philip Hammond said: “We have to maintain our credibility. We have eye-wateringly large debt, we still have a significant deficit in this country and we have to prepare the economy for the period that lies ahead.”
ECB insists no Brexit first-mover advantage
Bloomberg reports that European Central Bank officials have told banks that there will be no first-mover advantage when it comes to gaining regulatory approvals. The article suggests that EU policymakers could allow banks to use their existing UK internal risk models until regulators on the continent are in a position to perform their own assessments. Sabine Lautenschlager, Vice Chair of that ECB’s supervisory board, last week said that the organisation has “a task force which looks into all of the different scenarios, thinking about what does this mean with regard to passporting or no passporting, what does it mean with the whole question of authorisations and model approvals.”
The BBA’s Chief Economist Rebecca Harding blogs about the Bank of England Autumn Statement.
Germany takes hard line on Brexit
The FT (£, p1) report that Wolfgang Schäuble, Germany’s Finance Minister, has adopted a tough stance on the Brexit negotiations with the UK. Mr Schäuble insisted the UK would not get special treatment on migration if it wanted to remain in the single market. He said: “Without membership of the internal market, without acceptance of the four basic freedoms of the internal market there can, of course, be no passporting, no free access for financial products or for financial actors.” Mr Schäuble also said companies based in London had made “very many requests” about potentially relocating parts of their business to Frankfurt.
Ratings agency suggests euro clearing shift unlikely
S&P Global Ratings has cast doubt on whether EU authorities could move euro clearing activity from London to the continent after Brexit (FT, £, online only). The ratings agency said that any attempt to shift clearing would impose a “massive extra burden of margin collateral” on market participants, adding that such a policy shift would be “unparalleled among major global markets” (City AM, p1). An EY report released earlier this week warned that 83,000 jobs could be lost if euro clearing was forced away from London.
Focus on revenues at investment banks
Strong third quarter results by the world’s biggest banks were driven by a surge in revenues from debt trading, according to consultancy Coalition (FT, £, online only). The combined revenues of the 12 biggest investment banks — including fees for trading stocks and bonds and advising companies on mergers and fundraising — jumped to $40.4 billion, up 13 per cent on a year earlier. The newspaper reports that the spike in revenues from fixed income – up 36 per cent – can be partly attributed to the UK’s vote to leave the EU, which led to heightened trading activity following the referendum.
Senior banker backs London’s future as capital markets hub
The Telegraph (B1) reports that Jes Staley, the Chief Executive of Barclays, has said he expects London to retain its “gravitational pull” as a leading centre for global capital markets despite concerns over the impact of Brexit vote. Mr Staley said: “The users of capital find the providers of capital, not the other way around, and the providers of capital, by and large, are resident in London and New York.” He also said that Brexit could take longer to execute than originally planned, noting that it “is so complicated” and “is confusing for all of us” (FT, £, online only). Separately, Eurogroup President Jeroen Dijsselbloem has said Brexit negotiations could “take a lot longer than two years” (Reuters).
FCA calls for Lifetime Isa warnings
The Financial Conduct Authority has raised concerns about Lifetime Individual Savings Accounts (Lisa) and whether consumers will fully understand the new product (BBC News). Launching a 10 week consultation, the FCA warned that investors may not understand the difference between a Lisa saving and saving in a pension or appreciate the impact of the early exit charges. The regulator also said providers should offer cancellation rights for 30 days after selling a Lisa. Lisas – which offer a bonus for those using the money to save for a home or retirement – are due to launch in April 2017.
New rules for buy-to-let investors
The Chancellor has announced new mortgage affordability tests in the buy-to-let market, which will see property investors being able to borrow far less to fund their purchase (Telegraph, p1). The Treasury is giving the Bank of England additional powers the size of loan relative to the value of a property and also limit the size of loans relative to the amount of rent landlords receive to cover interest payments (Guardian, p31). Philip Hammond said: “Expanding the number of tools at the [Bank of England’s] financial policy committee’s disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability.”
This is the BBA’s submission on the Autumn Statement 2016. The main priorities of the BBA are outlined and recommendations for reform are put forward. Making Brexit work for Britain, supporting SMEs and savers, bank taxation, digital and exports are amongst the key issues discussed.
Carney highlights banks’ Brexit contingency plans
Reuters reports that Bank of England Governor Mark Carney has stated that banks based in the UK could start to relocate activities to other countries 18 months before the country leaves the European Union if a ‘hard Brexit’ looks likely. Speaking to MPs on the Treasury Select Committee, Mr Carney underlined that banks and insurers are putting contingency plans in place to ensure they are prepared if the UK loses access to the EU’s single market. He added: “It is very early days. So planning makes sense; action, in most cases, in general, is precipitous” (Bloomberg).
Mortgage costs at record low
The average homeowner is paying the lowest amount of his or her monthly income on mortgage repayments since records began, according to the Council of Mortgage Lenders (BBC News). The improvement in affordability comes after the Bank of England cut interest rates to 0.25 per cent in August. Paul Smee, the Director General of the CML, said: “Mortgage affordability reached an historic low in September, for both first-time buyers and home movers, which partly reflects the re-pricing of mortgages following August’s base rate cut. This should help turn strong appetite for home-ownership into a reality as we approach the closing months of the year.” Meanwhile, the Daily Telegraph (B8) reports that new figures from the Office for National Statistics have shown that growth in house prices in the UK slowed to 0.2 per cent in September.
Brits saving less money for future
The Daily Mail (p19) writes that a report by the Social Mobility Commission has found that a third of Britons do not save any money each month. Some 31 per cent have nothing left to put in the bank when the month is over, while half of the population save £100 or less. Only 23 per cent save £200 or more. Britons are currently saving only 5.1 per cent of their disposable income. This compares to 7.4 per cent only two years ago, according to official figures.
Global banks cut Asia headcount
The FT (£, p15) reports that the world’s biggest banks have cut up to 15 per cent of their Asian investment bankers since 2012 due to low M&A fee levels in the region compared to western clients. New data from industry benchmarking firm McLagan shows that the cuts were deepest in Hong Kong, which saw a 25 to 30 per cent reduction in staff levels. Separate data compiled by Dealogic shows that Asian clients are paying about 50 per cent less for advice on deals than clients in the US and Europe.
Leaked memo highlights Brexit tensions
The Times (£, p1) reports that a leaked memo has suggested that the Government has “no common strategy” for Brexit, with individual departments struggling to cope with the additional workload since the June referendum. The memo suggests Whitehall is working on more than 500 Brexit-related projects and could need to hire 30,000 extra civil servants. It also states that it will take another six months before the government decides precisely what it wants to achieve from Brexit or agrees on its priorities (BBC News).Speaking on BBC Radio 4’s Today programme, Transport Secretary Chris Grayling said the document was not a Government memo and rejected its contents.
Prime Minister gives speech on foreign policy and trade
Theresa May has stated that post-Brexit Britain has an “historic” opportunity to take on a new role as the global champion of free trade (BBC News). Speaking at the annual Lord Mayor’s Banquet at Guildhall, the Prime Minister pledged to make globalisation “work for all”. Carolyn Fairbairn, CBI Director-General, said: “It’s encouraging to see the government make a robust case for free trade. Working with business, it can ensure that the benefits help drive productivity, and increase living standards in all parts of the country.”
Simon Hills, BBA Executive Director of Prudential Capital and Risk, blogs about the Bank of England’s approach to MREL.
BBA raises concerns over Brexit and tax ahead of Autumn Statement
The Sunday Telegraph (B2) reports that the BBA’s Autumn Statement submission has called for clarity on possible “transitional arrangements” with the European Union as well as a transparent negotiation timetable and the “establishment of regulatory co-operation mechanisms”. The submission urged policymakers to fight for passporting rights so that banks maintain full access to the single market, while also building trading relationships outside the EU. It also highlighted the impact of banking-specific taxes, raising concerns that failing to provide a competitive tax environment could result in the UK “ceas[ing] to be the best place for banking business to be located”.
RBS Chairman calls for Brexit transition plan
The Guardian (p22) reports that the Chairman of RBS has warned banks could pull operations out of Britain without the Government drawing up transitional arrangements for Brexit. Sir Howard Davies stated that US and Japanese banks are concerned at the prospect of a hard Brexit and are drawing up contingency plans. He said: “I think it is damaging if we don’t get a transitional deal because I think you will then see banks and financial institutions making decisions on the basis of uncertainty […] they are currently making contingency plans and once you’ve got a contingency plan – hey, there is a risk you might implement it one day.”
Warning over of insider bank fraud
The Sunday Times (M1) reports that the City of London Police has raised concerns over the scale of fraud committed by staff at Britain’s banks after the newspaper undetook a freedom of information request. David Clark, head of the economic crime directorate at the City of London Police, said that the scale of frauds being committed by bank insiders is considerably higher than the number being reported. He said: “There is no compulsion for banks to report everything to the police. Sometimes [banks] do make the choice that it’s in their interests to release that person from their employment and deal with it internally. But I would say they should report it to the police, absolutely. What I wouldn’t want is for that person to go on to further employment or be pushed in a different direction to do the same again.” Separately, the Times (Saturday, £, p7) reported that the Office for National Statistics has stated that banks failed to report more than two million frauds last year.
The BBA’s Chief Economist Rebecca Harding blogs about what Donald Trump’s presidency could mean for monetary policy, trade and financial regulation.
Financing Growth has been produced to help small to medium-sized businesses identify some of the different finance options that may be available to expand their business, including information, tips and Read More
The BBA Brief will take a break for the Christmas period after today, and will return to your inboxes on Monday 9 January 2017. We wish you a restful Christmas Read More
Major banks are in the process of moving operations to Paris BBC Newsnight (online only) last night and BBC Radio 4’s Today Programme reported that some large international banks are Read More