August / September 2011
News roundup

FPC goes to work

The Financial Policy Committee (FPC) of the Bank of England has held its first meeting. The group has been established to monitor financial services and markets and highlight instances where it believes that too much risk is being taken.

The committee is made up of Bank of England Governor Mervyn King, Lord Turner and Hector Sants of the Financial Services Authority and four external members; former US Federal Reserve vice chairman, Donald Kohn, ex-Goldman Sachs and Deutsche Bank banker Michael Cohrs, former Bank monetary policymaker Sir Richard Lambert and ex-Bank executive Alastair Clark. See our special report on The New Regulators.

Southsea bank goes bust

The Southsea Mortgage and Investment Company has entered the Bank Insolvency Procedure. The minor bank concentrates on funding local housing development. The Financial Services Authority placed it in the Procedure with BDO LLP acting as liquidator. Borrowers with deposits in the bank can make claims within the Financial Services Compensation Scheme.

Southsea had some 250 depositors with total retail deposits of £7.4m. A statement by the Bank of England blamed “a deterioration in its financial position as a result of management decisions and the firm’s specific business model” for the failure.

Insurer calls for workplace financial engagement

Scottish Widows has called for greater financial education in the workplace. With a number of pension changes to occur in 2012 and recent studies showing that pension entitlements are a major factor in employees deciding where to work, the group believes that steps need to be taken.

A recent Scottish Widows report showed that 49 per cent of people were not saving enough for retirement. The Edinburgh-based group believes that businesses need to engage with their employees to highlight such shortfalls and close the savings gaps.

The Scottish Widows UK Pension Report 2011 also claimed that 20 per cent of people were not saving anything at all.

Ring-fencing is on Chancellor’s agenda

The Chancellor’s plans to ring-fence banking operations have received a cautious welcome. In his Mansion House speech on 15 June, George Osborne outlined his aim to protect retail divisions from losses incurred by banks’ investment arms.

Barclays’ chief executive Bob Diamond admitted that although “retail ring-fencing would not be our first option” he could “ see ways in which it could work”.

The Chancellor said that building these invisible walls would protect the UK economy and decrease the likelihood of any bank needing a government bail-out again.

The speech also confirmed that the state is to put Northern Rock up for sale. It is hoped that an auction for the troubled lender could raise as much as £1bn.

ING Direct USA sold to Capital One

Dutch Bank ING has announced that it will sell its US arm. Financial holding company Capital One is to buy ING Direct USA for $9bn.

The move is part of a restructuring plan which was drawn up in order to receive support from the Dutch state. ING said it regretted the sale but stressed that Capital One would be an excellent home for the business. The bank also said it would continue to expand its interests in Europe, Australia and Canada.

Lloyds considers floating branches

Lloyds Banking Group could spin off a large part of its branch network into a new bank if no serious bidders come forward to buy it. The bank is auctioning off over 600 of its branches.

The bank’s new chief executive, António Horta- Osório, forced the hand of potential bidders by setting 12 July as a snap deadline for indicative offers.

Virgin Money, new UK bank NBNK and the Cooperative Bank all submitted offers, while it is believed NAB asked for more time to consider its options.

However, Lloyds has said that if no bid reaches its criteria, it will spin off the network as a separate entity under the guidance of Paul Pester, who was recently appointed to oversee the sale.

Insiders still expect a sale to be the most likely outcome.

Follow Barclays’ PPI lead, banks are told

Leading UK high street banks are coming under pressure to compensate customers who were mis-sold payment protection insurance, on a “no quibble” basis. The move comes after Barclays announced it would reimburse anyone who had claimed before 20 April this year.

Consumer group Which? applauded the move and is now calling on Royal Bank of Scotland, HSBC and Lloyds Banking Group to follow suit.

The group’s chief executive, Peter Vicary-Smith, said: “It’s fantastic to see Barclays stepping up in this way, acknowledging its mistakes and refunding customers what they are owed, no questions asked. Hopefully this will have a domino effect. The sooner the banking industry can consign the PPI mis-selling scandal to the history books, the better.”

The Financial Services Authority has granted a temporary extension to the time limit in which Lloyds Banking Group, RBS, Barclays and HSBC had to deal with complaints. They now have until 31 August to resolve mis-selling claims that were put on hold during the recent judicial review.

Capital ratio limits could rise

A new system of tiered capital ratios for banks is being considered by global regulators. Under the terms of the new requirements, the 30 largest banks would be split into three capital ratio groups depending on their size and global presence.

Each bank would then be set minimum capital ratios on top of existing requirements, depending on which group they ended up in.

It is thought that the largest surcharge of 2.5 per cent of assets (on top of the 7 per cent already agreed by regulators) could be applied to up to eight banks – with HSBC, Barclays and RBS tipped for inclusion. It remains unclear how the capital ratio surcharges would sit alongside the existing proposal from the UK’s Independent Commission on Banking for a 9 per cent minimum tier one capital ratio in the UK.

Some European ministers are said to be against the plans. The UK government has accused EU ministers of trying to water down Basel III agreements and stop the UK from imposing stricter regulations on its banks.

Savers are losing out due to inflation...

Rising inflation is eroding any interest made on savings accounts, according to new research. Chartered Accountants UHY Hacker Young believes the total lost could be as high as £36bn a year.

Even traditionally higher interest accounts such as ISAs only pay an average of 2.57 per cent whereas the current Retail Price Inflation is more than twice that.

Tax partner, Mark Giddens, said: “The amount of money eroded away through inflation is staggering. In this climate of high inflation, savers need to be more proactive and shop around to get the best rates.”

The news comes as research from website Moneyfacts claims that the number of savings accounts on offer in the UK is at an all-time high.

...and hidden charges

A leading City firm has called for savers to be made aware of a whole range of hidden fees which crop up when investing in the stock market.

Fidelity International said the annual fee on one of its more popular funds was only one-third of the actual cost and that this was typical within the sector.

It is estimated that, for an ISA account, hundreds of pounds of hidden charges could easily be accrued without the customers’ knowledge – more for larger investments.

The firm is calling for the industry to publish “simple, transparent” fees that will show the “on the road” cost of different funds, rather than the annual management charge, which is traditionally all that is revealed.

PwC predicts profit pressure

Leading accountants PricewaterhouseCoopers (PwC) have said that profits at UK banks could be under pressure for another 10 years. PwC claimed that provisions against bad debts are still dangerously low compared with before the crisis.

The report on the European banking system said: “European banking profitability may remain under pressure even after NPLs have peaked, expected to be 2010-2011 for most markets, [as] the current level of provisioning has not increased at the same rate as the growth in NPLs”.

The largest volume of bad debts in Europe is held by UK banks.

Barclays’ strategy revealed

Barclays has unveiled an ambitious set of plans to increase revenues and cut costs in the next two years with the bank’s investment division at the core of the strategy.

As much as £2.4bn could be raised from Barclays Capital’s equities and investment banking advisory businesses. The retail and business banking arm is hoping to generate a further £2bn. Barclays Corporate and Barclays Wealth have been set a target of increasing their annual income by £1bn.

The UK bank has previously said it will achieve a 13 per cent return on equity target.

Barclays is also reported to be eyeing up a move for one of Spain’s troubled savings banks but has refused to comment on the speculation.

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