This week’s news includes; RBS fails Bank of England stress test, Cadbury pulls out from Fairtrade schemes, a new challenger bank opens and JD Sports acquires Go outdoors.
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Opinion articles of the week:
- How Will London Fair as a Financial Hub Post Brexit? Click here for the debate.
- Fourth industrial revolution ‘could leave UK behind’. Click here for more.
- The euro has survived sovereign default, recessions, banking crises and bailouts. It may not survive populism. Click here for more.
1. ITALY REFERENDUM: PM MATTEO RENZI RESIGNS AFTER CLEAR REFERENDUM DEFEAT
Italian Prime Minister Matteo Renzi has resigned after suffering a heavy defeat in a referendum over his plan to reform the constitution. In a late-night news conference, he said he took responsibility for the outcome. He said the No camp must now make clear proposals.
An exit poll for state broadcaster RAI suggests 42-46% voted to back reform, compared with 54-58% voting No. The first projections based on the official count point to a wider defeat. Early indications have the Yes vote at 39-43% and the No at 57-61%.
“Good luck to us all,” Mr Renzi told reporters. He said he would tell a Cabinet meeting on Monday afternoon that he was resigning, and then tender his resignation to the Italian president after two-and-a-half years in office.
Mr Renzi said the reforms would have cut Italy’s bureaucracy and made the country more competitive. The vote asked about plans to streamline parliament but it was widely seen as a chance to register discontent with the prime minister.
The No vote was supported by populist parties, and the referendum was regarded as a barometer of anti-establishment sentiment in Europe. Opposition leader Matteo Salvini, of the anti-immigrant Northern League, said that if the exit polls were confirmed, the referendum will be a “victory of the people against the strong powers of three-quarters of the world”.
For more information on the referendum and discussion about the importance of it click on the link. (BBC News)
2. RBS FAILS BANK OF ENGLAND STRESS TEST
The Royal Bank of Scotland became one of the biggest fallers on the FTSE 100 on Wednesday after the lender failed to pass the Bank of England’s stress test.
RBS, which is still 73 per cent owned by the taxpayer after its bailout in 2008, failed the stress test on all of the key measures, making it the worst performer among the UK’s major lenders.
Barclays and Standard Chartered also struggled under the test, however neither was required to submit a revised capital plan.
Shares in RBS have tumbled by nearly 5 per cent in morning trading, while Barclays was down 0.3 per cent and Standard Chartered opened 0.4 per cent lower. Shares in Lloyds, which sailed through the stress test, were up 1.2 per cent.
The result of the test means RBS must take action to protect itself against a sharp slump in the economy.
RBS has issued a plan intended to bolster its financial strength by an estimated £2bn, which has been accepted by the BoE. However, Neil Wilson of ETX Capital said RBS could find it very difficult to raise an additional £2bn given that is yet to turn a profit some eight years after being bailed out. (The Independent)
3. OIL INDUSTRY
Opec agree oil production cut
Petrol prices in Britain are set to rise after the Saudi-led Opec cartel struck a “historic deal” to cut production for the first time in eight years.
Oil prices jumped by 8 per cent higher to more than $50 a barrel on Wednesday as the Organisation of the Petroleum Exporting Countries (Opec) reached a deal amongst all 14 members to curtail oil supply.
Brent crude, the global benchmark rose a further 1 per cent to $52.36 a barrel in early trading on Thursday, while New York crude climbed over $50 a barrel for the first time since the end of October.
While record low prics might stay put for the time being, motorists should expect to be hit hard over the coming months as consumer prices catch up with the price of oil. Motoring groups warned the deal could add up to £5 to the cost of filling up an average family car.
Petrol prices dropped sharply earlier this year to about 100p a litre after oil plummeted to below $27 a barrel, as Iran increased production when sanctions were lifted.
A significant rise in the price of oil in the wake of the Opec production cut could lift petrol prices by up to 9p a litre, or £4.95 for a full tank, according to the AA. At present, average fuel prices stand at 114.16p for unleaded and 116.36p for diesel, according to PetrolPrices.com (01/12/16) (The Independent)
UK oil investment falls by £5 billion since 2014
Investment into the UK Continental Shelf (UKCS) sea areas, which incorporates all of the UK held parts of the North Sea, has fallen down to £9 billion this year, compared to a record £14.8 billion two years ago, according to leading trade association Oil and Gas UK.
Their economic report for 2016 revealed that so far in 2016, only one field has been approved for investment, with less than £100 million of fresh capital committed to the basin.
In comparison to a year ago this is a derisory figure, as five Greenfield sites were sanctioned, with associated development capital surpassing £4.3 billion.
Speculation on Brownfield projects has also decreased, Oil and Gas UK wrote, as just five new projects were approved in the first eight months of 2016, compared to ten in total during the whole of last year.
Overall, total expenditure fell to £21.7 billion from £26.6 billion in 2015, as discretionary spending was placed on the back burner to preserve cash flow. (City A.M)
4. CITIGROUP BEGINS TALKS TO MOVE LONDON BANKING JOBS TO GERMANY
Citigroup is considering moving some of its London-based equity and interest-rate derivatives traders to Frankfurt after Brexit is triggered, according to people with knowledge of the matter.
The US firm is already in discussions with the German financial regulator BaFin about getting the necessary approvals, said the people, who asked not to be identified because the talks are private. Citigroup’s plans could change depending on how the negotiations between the UK and European Union develop, one of the people said.
Citigroup’s efforts show banks are shifting from warning about moving jobs from Britain to firming up plans to do so by picking specific destinations. The US bank expects to have desks up and running across the region before the end of the expected two-year negotiation period and is in discussions with the European Central Bank and regulators in EU nations including Ireland about relocating other parts of its operations, one of the people said.
Officials from a host of European locales, such as Paris and Luxembourg, have been courting London-based investment banks ever since the UK voted to leave the EU on 23 June.
Germany’s financial capital has an asset in BaFin, one of the few regulators in the region with experience overseeing complicated derivatives trading businesses. That’s not the case in Dublin, often touted as a likely destination for U.S. banks given language and cultural ties. Ireland’s financial regulator has made it clear that it would not be comfortable with the nation housing derivatives operations, one of the people said.
One of London’s historic advantages over Frankfurt has been German labour laws, which make it harder for banks to fire staff in a downturn. In a bid to make Frankfurt more attractive, the regional Hesse government is exploring ways to loosen those rules. (The Independent)
5. CADBURY WITHDRAWS FROM FAIRTRADE CHOCOLATE SCHEME
Cadbury is pulling out of the Fairtrade scheme, after seven years of giving some of its best-known chocolate treats an ethical stamp of approval, in favour of its own sustainability programme – Cocoa Life scheme.
The Fairtrade logo is awarded to products that meet strict criteria such as paying farmers minimum price for cocoa. Cocoa Life branding will replace the Fairtrade logo, currently on the front of plain Cadbury Dairy Milk bars, from May. Products such as Cadbury Dinking Chocolate, Dairy Milk Buttons and Giant Buttons will follow.
The Fairtrade logo will now be transferred to the back of the products’ packaging as a “partner” on the ground that Fairtrade will continue to monitor the company’s work. Mondelez International, Cadbury’s US owner, said the move was a “groundbreaking commitment”. However, the decision has been received by criticism from many in the industry.
Anna Taylor, executive director of the Food Foundation, said she feared the Fairtrade mark could be threatened from less transparent company promises. She was said: “The UK leads the world in Fairtrade with more products and more awareness than anywhere else, and we have seen a rapid rise in sales in the last two decades.
“But for growth to continue, which I hope it will, consumers must trust, see and recognise the mark. If every company has their own mark it will be extremely difficult for consumers to determine which mark represents the best, independently verified standard.”
Under existing Fairtrade rules, companies are made to pay cocoa farmers at least $2,000 (£1,600) per tonne of cocoa. Such a rule does not exist under the Cocoa Life programme, although Cadbury’s agreement with Fairtrade to keep the logo on the back of their chocolate bars demands that farmers should not be worse off under the new scheme. (The Independent)
6. TATA SIGNS SALE LETTER FOR SPECIALITY STEEL BUSINESS EMPLOYING 1,700
Tata Steel has signed a “letter of intent” on the sale of its speciality steels business employing 1,700 UK workers for £100m.
The letter means it has entered exclusive talks with Liberty House – which has previously rescued Tata steelworks in Scotland. A deal is expected to be completed by early 2017.
It follows months of uncertainty after the Indian-owned giant put up its UK business for sale earlier this year. The speciality steels business includes units at Rotherham, Stocksbridge and Brimsworth in South Yorkshire, plus service centres in Bolton and at Wednesbury in the West Midlands.
The business makes steel for the aerospace, automotive and oil and gas industries. Roy Rickhuss, general secretary of the Community trade union, said that as well as 1,700 direct jobs, it supported many more in the supply chain and local economies. (Sky News)
7. NEW CHALLENGER BANK OPENS
Masthaven has become the latest challenger bank on the scene, as it officially opens for business today (28/11/16).
The bank was initially awarded its retail banking licence in April and has spent the time between then and now strengthening its team and developing its technology platform and product offering. At present, the challenger offers a flexible term savings account, where savers can choose an account length between six months and five years.
Masthaven also intends to launch on the mortgage market early next year, with a focus on bridging lending, aimed at those who are living between properties or looking to downsize.
“We are determined to help more people access financial products that will truly meet their needs,” said Andrew Bloom, founder and chief executive of Masthaven. “We have established a fantastic and dedicated team of experts to get the bank to launch and we are now very much looking forward to working with customers and brokers to show them what we have created.”
The bank will run under a partnership model and 80 per cent of the challenger’s employees are already shareholders in the business. (City A.M)
8. JD SPORTS ACQUIRES GO OUTDOORS
JD Sports has acquired retailer Go Outdoors for £112.3 million from its private equity owners.
The deal will see JD Sports buy the 58-store tents to cycles retailer from YFM Equity Partners and 3i Group and adds to the group’s stable of outdoor brands such as Blacks, Millets and Ultimate Outdoors. As a result of the deal, Go Outdoors founders Paul Caplan and John Graham will leave the business.
JD Sports chief executive Peter Cowgill said: “Go Outdoors is a great addition to our existing Outdoor business.
“The minimal overlap in store locations and their out-of-town, one-stop retailer approach complements the work we have done on the high street with Blacks and Millets and further strengthens our offering in the Outdoor sector. I am excited by the future prospects this holds for the JD Group.”
In the 53 weeks to January 31 2016, Sheffield-based Go Outdoors made revenues of £202.2 million and saw pre-tax profit of £4.9 million.
In September, JD Sports notched up record half-year profits and announced plans to set up shop in Australia, as well as vowing to press ahead with European expansion despite the Brexit vote. (Business Reporter)
9. MORTGAGE APPROVAL NUMBERS RECOVER AFTER EU REFERENDUM LULL
The number of mortgages approved for house purchases increased for a second month in a row in October as the property market recovered from a lull after the EU referendum.
Bank of England figures showed 67,518 home loans were given the go-ahead, up from 63,594 in September and the highest number since March.
Consumer lending also surged, according to the figures – prompting a warning on the risk that some could be getting into trouble with debt ahead of Christmas.
The number of mortgage approvals was ahead of the 65,000 expected by economists and a continued uptick after the number slipped to 61,381 in August.
Martin Beck, senior economic adviser to the EY ITEM Club, said: “Housing market activity faltered in the middle of the year, which is likely to reflect uncertainty surrounding the EU referendum and distortions caused by April’s increase in stamp duty on second homes and buy-to-let properties.
“However, mortgage activity has recovered and is now at similar levels to those seen through much of 2015.”
The Bank figures also showed a £1.6bn increase in consumer credit during last month. The year-on-year increase of 10.5% in consumer loans was the strongest in 11 years. (Sky News)
10. TRAIN FARES RISE
Train fares in Britain will go up by an average of 2.3% from 2 January, the rail industry has announced. The increase covers both regulated fares, which includes season tickets, and unregulated fares, such as off-peak leisure tickets.
The rise in regulated fares had already been capped at July’s Retail Prices Index inflation rate of 1.9%. Unregulated fares face no cap. Campaigners said passengers would be disappointed by the increase.
“Passengers will now want to see the industry’s investment deliver a more reliable day-to-day railway,” said Anthony Smith, chief executive of the watchdog Transport Focus.
“The government should consider setting rail fare rises around the Consumer Prices Index instead to bring rail fares into line with other recognised measures of inflation.”
Lizzie Green, a London commuter, said: “Given that the trains are so irregular and the delays are so often it seems like a bit of a cheeky increase.”
Some unregulated fares are likely to rise by considerably more than 2.3%. (BBC News)