The key macro-economic, personal finance, property and recruitment stories from today’s papers, read by Wriglesworth Director James Staunton
- In the Financial Times, Brooke Masters (amongst others) reports on the joint paper from Paul Tucker and Martin Gruenberg, chairman of the US Federal Deposit Insurance Corporation, outlining how they’d deal with cross-border bank failures. Elsewhere, the FT says the approach is straightforward – either the US or the UK regulator would take control, fire the management, wipe out the shareholders and force bondholders to take equity: “All in all, pretty similar to a standard debt-for-equity swap”. While yesterday’s Evening Standard leader said these measures would help make banks behave more responsibly and deserve serious consideration from ministers, in an opinion piece in The Independent, James Moore wonders whether any of the new safeguards would really work if another mega-bank hit the wall. LEX agrees the approach isn’t perfect, highlighting three difficulties “all of which illustrate why banking is still in crisis”. First, by formalising the bondholder bail-in, the plan will raise banks’ cost of debt. Second, it is very well for the FDIC and the BoE to give their views on the matter, but there is no guarantee other regulators will follow. They may decide on an approach that is not compatible with how the FDIC and BoE see things. Finally, all this regulation should create an industry that is cheaper to fund and can happily lend into a growing economy. But that golden future is a long way off, and in the meantime the banks are faced with ever-changing rules that all make life more expensive. That is hardly the basis for the kind of lending that would help the economy.
- The Daily Mirror’s Graham Hiscott says E.ON will raise its tariffs next month, with customers getting both gas and electricity from the company hit with an 9% rise. The company didn’t mention that some customers will be affected more than others due to regional pricing, with power bills in parts of the South East going up by 11%. E.ON UK boss Tony Cocker blamed government ‘taxes’ among other rising costs for the higher tariffs.
RECRUITMENT & EMPLOYMENT
- In The Sun, Steve Hawkes reports that the MoD has confirmed a Royal Navy submarine deal, bringing joy to 3,000 BAE Systems workers at Barrow-in-Furness. The £2.7bn deal will see work continuing on four new submarines in a seven-sub programme. BAE had to show the affordability of the programme and that it could meet Navy requirements.
- While in his Editor’s Letter, City AM’s Alistair Heath compares buoyant prices in prime central London (where they are now an astonishing 30% higher than pre-recession in nominal terms, buoyed by foreign cash) to non-prime central London (where prices are just 5% above their previous peak) and Outer London (remain they were or are down), Ben Southwood points out that 39% of landlords surveyed by LSL Property Services expect rents to rise over the coming year, with just 1% predicting they would decline.
The latest Mortgage Monitor, produced by e.surv chartered surveyors, revealed there were 54,713 house purchase loans in October, the highest since January, and the second highest since December 2009. It represents a 4% increase on October last year, and reverses four consecutive months of negative annual growth dating back to May this year.
The rise in lending has been driven by an increase in the mortgage credit availability to lenders, thanks primarily to the government’s Funding for Lending Scheme. Lenders have reported a 36% increase in mortgage credit for Q4 – the biggest quarterly increase since records began – which has encouraged banks’ to increase lending volumes and introduced more competition into the market. A higher proportion of house purchase loan applications were approved in October, with lenders predicting a 6% increase in the proportion of application approvals in Q4 compared to Q3.
Encouragingly, in line with the wider uplift, lending to borrowers with small deposits was 10% higher in October compared to Q3. There were 5,307 loans to borrowers with a deposit of less than 15%. This was the highest since April, and higher than the Q3 average of 4,826.
Richard Sexton, business development director of e,surv, explains: “If we discount January this year, when lending levels were artificially high thanks to the rush to beat the end of the stamp duty holiday, house purchase lending is as strong as it’s been since the end of 2009. It suggests the mortgage market is beginning to find it’s feet again after a torrid six months caused by tight funding conditions for lenders I would speculate that much of the improvement is down to the Funding for Lending Scheme. It didn’t have a significant impact in Q3, but now it is beginning to flood lenders’ balance sheets with cheaper funds and has encouraged them to increase their mortgage lending.”
The increase in lending was spread equally across different LTV bands, indicating lenders are still not yet confident enough to use the improvement in mortgage credit to focus their lending disproportionately on high LTV borrowers. Nine in ten house purchase loans in October went to borrowers with an LTV below 85%, a similar level to September and Q3.
Richard Sexton explains: “The improvement in October is encouraging, but it is by no means a sign the market will recover to its pre-financial crisis health. Lenders aren’t confident enough to really begin focusing their efforts on first time buyers, which is why lending to high LTV borrowers still forms a disproportionately small share of the mortgage market. Lenders are hamstrung by strict capital adequacy requirements and the prevailing tight funding conditions in the wholesale money markets. These are chronic problems that will continue to hamper their efforts to increase their lending in the long-term. FLS is an artificial stimulant which appears to be counteracting these drags and encouraging lending that may not otherwise have occurred – to this extent it should be applauded. But it isn’t a cure to the broader economic problems blighting the mortgage market. It will take a sustained spurt of economic growth to resuscitate the market back to rude health.”
LOANS FOR HOUSE PURCHASE (seasonally adjusted)
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In the papers today, the Financial Times has Greece on the front page after it had to go cap in hand to the ECB to seek a two-year extension to its austerity handouts. This comes as Greece struggles to squeeze another £11.5bn of spending cuts from the carcass of its economy, part of a tough programme imposed by the EU and IMF under the terms of its bailout. Greece branded the deficit reduction demands as ‘excessive’.
The Daily Mail’s James Coney claims Sir David Walker’s recent comments on free banking suggests the incoming Barclays’ chairman blames bank customers for mis-selling. Tim Wallace, writing in City AM also looks at the popular free banking current accounts model. He says FSA boss Lord Turner favours charging customers for current accounts but that consumer groups warn customers could be badly ripped off if free banking is scrapped.
The Times looks at news from e.surv chartered surveyors who say that there were 9 per cent more Scottish house sales in the first half of this year compared with the same period last year, as the market begins to recover.
Recruitment & Employment
And new unemployment statistics will come out today. Last month’s figures showed that unemployment fell by 65,000 in the three months to May to 2.58 million, with the unemployment rate at 8.1pc. The number of unemployed 16 to 24-year-olds fell slightly, to 1.02 million. The Olympics should have a positive impact on jobs.
The key macro-economic, personal finance, property and recruitment stories from today’s papers, read by Wriglesworth Director James Staunton.
The Times reports LSL’s buy-to-let index which shows average rents have risen for the third month in a row to £718. London saw record rents for the second month in a row. Ben Southwood, writing in City AM quotes Jonathon Moore of Easyroommate who points out that rising rents are undermining the efforts of first time buyers to save for a deposit. Given rising rents it is perhaps not surprising that research from Mortgages for Business says sixty percent of property investors are looking to expand their portfolios. That’s reported in the Independent.
Quentin Peel and Miles Johnson – writing in The Financial Times – say German lawmakers have approved a rescue deal for Spanish banks. Yesterday the German parliament approved a €100bn rescue programme to recapitalise them. Spain’s 10-year borrowing costs rose back above 7 per cent.
City AM debates M&S’s decision to offer current accounts for a fee. PwC’s Stephen Whitehouse argues M&S’s this is a sign that no-charge banking is dying. Malcolm Hurston, who launched free banking at the Co-operative bank in 1974, disagrees.
And the Financial Times raises the spectre of excessive executive pay, reporting Marissa Mayer, Yahoo’s new chief executive officer, could receive more than $100m dollars in stock awards if she remains as CEO for the next five years – or longer than her four predecessors combined.
Euro-crisis deepens; Moody’s downgrades 16 Spanish banks, including Santander UK, citing the government’s reduced ability to provide financial support to the sector. Fitch also downgraded Greece’s credit rating from B- to CCC. Markets slumped worldwide – FTSE fell to a six month low. FT, p.1 Telegraph Business p.1,5, Times p.1, Guardian p.14-15, Independent p.1,51, Mail p.4
Facebook to debut on the stock market today; initial share price is $38, giving it a valuation of $104bn and placing it in the top 25 US public companies – and second only to Visa as a public offering. Mark Zuckerberg (at the grand age of 28) has a stake valued at $19bn, and 1,000 present and former employees will be transformed into millionaires. May push the site in a new direction, with more advertising or looking for new ways of making money as new shareholders put pressure on the company to increase its revenues FT p.1, Telegraph Business p.1, Times p.1, Guardian p.26, Independent p.51, Mail p.33
Household finances suffer; falling house prices and stretched household finances leave consumers feeling pessimistic that the government is doing anything to help, according to YouGov’s household economic activity tracker index. Perceived home values and concern about family finances fell – while in contrast the job security index moved upwards. City AM p.18
Potential homebuyers should expect costlier mortgages as a result of eurozone fears, according to LSL. Lenders are likely to become more cautious as fears about Greece’s future continue. Independent p.54
London’s position as the home of financial services jobs is slipping; regional centres such as Edinburgh, Manchester and Leeds are winning these jobs instead, according to recruitment company Brightpool. Over half (55%) of all new financial services job vacancies last month were outside the capital, compared with around 20% before the credit crunch. FT p.4