Archive forDecember, 2016

Deutsche Bank agrees $7.2bn penalty with US regulators

Germany’s Deutsche Bank says it has agreed a $7.2bn (£5.9bn) payment to US authorities over an investigation into mortgage-backed securities. The sum, which needs final approval, is far lower than the $14bn the US had asked the bank to pay in September. That looming fine had caused concerns that a failure of the bank could pose a risk to the global financial system. The sale of residential mortgage-backed securities played a significant role in the 2008 financial crisis. Several banks in the US have been subject to investigations over allegations of giving mortgages to unqualified borrowers, then repackaging those loans as safe investments and selling the risk on to others. The inquiries related to deals done between 2005 and 2007. Meanwhile, Credit Suisse has said it has agreed a $5.28bn deal to settle its own dispute with US authorities over mortgage-backed securities. The Swiss bank will pay US authorities $2.48bn, and will also give consumers $2.8bn in compensation over the next five years.

Forward Diary: 26th – 30th December 2016

Company and economic announcements planned for the week commencing 26th December 2016

Broadband boost for remotest parts of UK

The government has said £440m has been found so about 600,000 more premises can gain access to superfast broadband. The cash comes from “efficiency savings” and money returned by BT as part of the government’s flagship broadband rollout scheme. Culture Secretary Karen Bradley said the funds would help to bring faster speeds to homes and businesses in some of the most remote parts of the UK. Experts said it was not all “new money” but would still be welcomed. The cash will be made up of £150m in cost savings and the rest in the form of returned subsidies from BT, the government said. Under a 2010 deal, the government paid BT to roll out superfast broadband in hard-to-reach areas where providers had said it was not cost-effective to install broadband infrastructure. As part of the agreement, if more than 20% of premises in those areas bought superfast broadband, BT had to repay some of the subsidy. On average, the take-up has been 30.6%, leading to a forecast repayment of £292m, the Department for Culture, Media and Sport said.

CBI calls for barrier-free trade with EU after Brexit

UK firms need to continue to have “barrier-free” access to European Union markets after Brexit, the CBI business lobby group has warned. It said UK companies should not be subjected to trade tariffs, with only “minimal” other barriers in place. In a report, it also called for a migration system that allowed firms to obtain the skills and labour they need. The government said it was committed to delivering the best possible access to European markets for UK businesses. The CBI reiterated its call for a “smooth exit” from the EU, avoiding a “cliff edge” break.

Lloyds Bank buys MBNA credit card firm for £1.9bn

Lloyds Banking Group (LLOY.L) is to buy credit card firm MBNA from Bank of America in a £1.9bn deal. Lloyds chief executive Antonio Horta-Osorio said MBNA would be a “good fit” with the bank’s current credit card business. The bank, which is nearly 7% state-owned, said its share of the UK credit card market would increase from about 15% to 26% after the transaction.

Thousands of workers set to strike in Christmas week

Thousands of workers will launch a wave of strikes this week, hitting postal services, rail companies and airlines in the run-up to Christmas. About 3,000 staff at hundreds of Crown post offices are expected to walk out on Monday, Tuesday and Saturday. The action marks an escalation of their dispute over pension changes, job security and closures. Meanwhile the rail strike at Southern continues with conductors beginning two-day action. Kevin Gilliland, Post Office group network and sales director, said fewer than 300 branches would be affected, with “business as usual in almost all of our network”. On Wednesday and Thursday, workers who supply many sub-post offices with cash will join the action. There are fears the situation could escalate if unofficial action is taken by Royal Mail workers who refuse to cross picket lines. A Royal Mail spokesman said: “There will be little or no impact on Royal Mail as a result of the CWU strike at the Post Office. Deliveries will carry on as normal and the last posting dates for Christmas remain unchanged.”

Sky and 21st Century Fox agree £18.5bn takeover deal

Broadcaster Sky and 21st Century Fox have reached agreement on the terms of a takeover deal. Rupert Murdoch’s 21st Century Fox will pay £11.7bn for the 61% stake it does not already own. Sky shareholders will receive £10.75 in cash for each share, valuing the entire company at £18.5bn. The deal comes amid concerns that Rupert Murdoch, who also owns the Sun and the Times newspapers, will have excessive influence over UK media. Karen Bradley, the Culture Secretary, will have 10 days to decide whether the Fox bid raises public interest concerns, in this case media plurality, starting from when the companies notify the competition authority. She has the power to ask Ofcom, the media watchdog, to examine the deal.

Forward Diary: 19th – 23rd December 2016

Company and economic announcements planned for the week commencing 19th December 2016

‘One billion’ affected by Yahoo hack

Yahoo has said more than one billion user accounts may have been affected in a hacking attack dating back to 2013. The internet giant said it appeared separate from a 2014 breach disclosed in September, when Yahoo revealed 500 million accounts had been accessed. Yahoo said names, phone numbers, passwords and email addresses were stolen, but not bank and payment data. The company, which is being taken over by Verizon, said it was working closely with the police and authorities. Yahoo said in a statement that it “believes an unauthorized third party, in August 2013, stole data associated with more than one billion user accounts.” The breach “is likely distinct from the incident the company disclosed on September 22, 2016”. However, the three-year-old hack was uncovered as part of continuing investigations by authorities and security experts into the 2014 breach, Yahoo said. Account users were urged to change their passwords and security questions.

Abandon net migration target, says CBI

The employers group, the CBI, is calling on the government to abandon an immigration target which was set by David Cameron and which then proved part of his undoing. Net migration measures the number of people coming to Britain, minus the number of people leaving. Given that it’s pretty hard to control the number of people leaving, it’s arguably a dangerous thing on which to pin your political career. But that’s what the former prime minister did when he pledged to get the number down to the “tens of thousands” from over 300,000 a year. David Cameron failed, and unease about the number of people arriving from the EU was the defining issue of the referendum. The message was clear: without control of our borders we have no chance of ever controlling net migration. The rest is now history.

Trump delays announcement on his business empire

Donald Trump has delayed an announcement on how he plans to separate his business empire interests from his role as US president. The US president-elect had been due to hold a rare press conference on Thursday to discuss how he would deal with perceived conflicts of interest. Mr Trump’s spokesperson said the announcement would now come in January. Meanwhile, Mr Trump said he was appointing Goldman Sachs President Gary Cohn as his “top economic adviser”. Mr Cohn will head the the White House National Economic Council, a position that will make him one of the most influential voices on economic decisions in the White House.

UK ‘s current GDP growth rate won’t last, warns business body

“The business as usual” approach taken by many firms following the Brexit vote has helped boost UK growth this year, but it will not last, the British Chambers of Commerce (BCC) has warned. The business body expects GDP to grow by 2.1% this year, up from the 1.8% it forecast just three months ago. But uncertainty over the UK’s EU relationship and higher inflation will “dampen medium term growth,” it said. It expects the UK’s economy to grow by 1.1% next year, and by 1.4% in 2018. A separate report on business conditions from accountancy and services group BDO found business output rose for the first time in November after 17 months of decline. It said this suggested that “for now” the UK economy had stabilised “in a lower gear” than it had been running at before the referendum. However, it said, business optimism was continuing to fall, and it expected “a bumpy road ahead in 2017 for British businesses and the economy”.

Food industry warns of higher prices without EU workers

The UK faces higher food prices without continued access to EU workers, 30 food and drink associations have warned. In a letter published in the Guardian, they argue that EU workers play an important role in the supply chain and some are already starting to leave. It called on the government to offer “unambiguous reassurance” about their right to remain. Nearly four million people are employed in everything from harvesting to production to selling food and drink. In food manufacturing just under a third of workers are from the EU. “Workers from the EU, some of whom are already leaving the UK, play a significant role in delivering affordable and high-quality food and drink,” the letter said. “The government should offer unambiguous reassurance to EU workers throughout our supply chain about their right to remain. For the longer term, it is important to recognise that these workers are highly flexible and provide an essential reservoir of skilled, semi-skilled and unskilled labour.”

Forward Diary: 12th – 16th December 2016

Company and economic announcements planned for the week commencing 12th December 2016

Sports Direct sees sharp fall in profits

Sports Direct (SPD.L) has reported a big drop in half-year profits after being hit by the fall in the pound. The retailer, which has been heavily criticised for the treatment of some of its workers, said underlying pre-tax profits fell 57% to £71,6m. Chief executive Mike Ashley said the past six months had been “tough for our people and performance”. The company said it was continuing in its efforts to become the “Selfridges” of sports retail.

Housing crisis ‘creates in-work poverty’

Poverty among people who are working has risen despite a recovery in the UK economy, a study has suggested. High rental housing costs mean an estimated 3.8 million workers – one in eight – are in poverty, according to the Joseph Rowntree Foundation (JRF). It said in-work poverty was up by 1.1 million since 2010-11, and 55% of those in poverty were in working families. People with less than 60% of median income are classified as poor. Overall poverty was down, the government said. Its figures suggested poverty numbers had been falling compared to six years ago. “Since 2010, the number of people living in poverty has fallen by 300,000 but we know there is more to do. We are increasing the National Living Wage and taking millions of people out of income tax, to make sure it always pays to be in work,” a government spokesman said.

Carney warns about popular disillusion with capitalism

The Bank of England Governor Mark Carney has warned that people will turn their backs on free and open markets unless something is done to help those left behind by the financial crisis. In a speech, he said: “Globalisation is associated with low wages, insecure employment, stateless corporations and striking inequalities.” In many advanced economies there are “staggering wealth inequalities,” he added. Mr Carney was speaking in Liverpool. He told his audience that politicians and central bankers must act to ensure people do not lose faith in the current system. “Turning our backs on open markets would be a tragedy, but it is a possibility,” he said. “It can only be averted by confronting the underlying reasons for this risk upfront.”

Euro wobbles after Italian referendum

The euro fell sharply against the dollar after Italian Prime Minister Matteo Renzi suffered a heavy defeat in Sunday’s referendum. The fall continued after Mr Renzi announced his intention to resign. At one stage the euro hit $1.0507, its lowest level since March 2015. But it rebounded from that low and a short while ago was at $1.0563, still down 0.96% from Friday’s close. Analysts say that there is caution among investors but not panic. “While the markets are likely to remain nervous as we start a new week, they haven’t fallen off a cliff, so far,” said Kathleen Brooks, research director at City Index Direct. “Either markets are becoming immune to political risk, or they are taking the view that the Italian issue will be a slow-burner, even if the president can’t form a government, he still has 70 days to try, and that seems quite far away at this stage,” she said. However, the Italian economy is in a fragile state and a period of political uncertainty could do it further damage.

Train fares to rise by average of 2.3%

Train fares in Britain will go up by an average of 2.3% from 2 January, the rail industry has announced. The increase in regulated fares, which includes season tickets, is capped at July’s RPI inflation rate of 1.9%. Unregulated fares, such as off-peak leisure tickets, can go up by as much as the train companies like. The Rail Delivery Group, which represents train operators and Network Rail, said the industry was working to simplify fares and improve services. “We understand how passengers feel when fares go up, and we know that in some places they haven’t always got the service they pay for,” said Paul Plummer, chief executive of the Rail Delivery Group. “Around 97p in every pound passengers pay goes back into running and improving services.”

Bank governor Mark Carney warns on household debt

The governor of the Bank of England, Mark Carney, has given a warning about the high level of debt in UK households. In particular he said that consumers were borrowing more on their credit cards and other unsecured debt. Figures from the Bank this week showed that credit card lending is at a record level, up by £571m in the last month. Overall unsecured debt – which includes overdrafts – is rising at its fastest pace for 11 years. “We are going to remain vigilant around the issue, because we have seen this shift,” he told a press conference at the Bank. The Bank’s Stability Report showed that the overall ratio of household debt to income was 133% in the second quarter of 2016. The Bank said that was high by historical standards, although it was not as high as in the financial crisis. “It’s the early phase of re-leveraging, following a long period of improvement of the position,” said Mr Carney.