Category Archives: Finance

HSBC’s New Sheffield Base Named

Alexander Tredwell – Leaders in Specialist Professional Recruitment

HSBC employees have chosen their preferred name for the bank’s new office, which is being built as part of the new Sheffield Retail Quarter.

HSBC’s new Sheffield base named

The bank’s employees opted for Grosvenor House as the name for the new office celebrating the heritage of the site, which used to be occupied by the Grosvenor House Hotel.

HSBC employees in Sheffield will be relocated from their current office space at Griffin House to Grosvenor House in 2019 after the banking giant signed as the anchor tenant on a 15-year lease, committing them to Sheffield city centre.

The new address for HSBC’s office will be Grosvenor House, No.1 Wellington Street.

The main office entrance located on the corner of Wellington Street and Cambridge Street, and another entrance facing onto a new area of public realm at Charter Square. The building will also include retail space and shop fronts will be primarily located on Cambridge Street and also the important corner where Pinstone Street meets Furnival Gate.

Councillor Mazher Iqbal, cabinet member for business and investment at Sheffield City Council said: “We’re delighted that employees at HSBC have acknowledged the Grosvenor House Hotel in this way. It links the building’s future perfectly with its past.

“We have worked closely with HSBC for some time now on the design of its new office space.

“Their team has been a pleasure to work with and it is fantastic that HSBC has committed to our city centre as it is a vitally important employer with a proud history in our city.”

James Emmett, chief operating officer at HSBC Bank, said: “Our colleagues overwhelmingly voted for Grosvenor House as the name of our new home in Sheffield. The city is an important regional hub for our IT operations and we are delighted that the construction of our new office is progressing well.”


EU blocks Three’s takeover of O2

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The European Commission has blocked Telefonica’s sale of O2 to CK Hutchison, the owner of Three. The planned deal was worth £10.3bn, and would have left the UK with just three major mobile phone network operators. But Europe’s competition commissioner, Margrethe Vestager, said she had strong concerns about the takeover, ruling that it would reduce customer choice and raise prices.

CK Hutchison said they were considering a legal challenge to the decision. “The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses,” said Ms Vestager. “We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality.” The decision ruled that concessions offered by Hong-Kong based Hutchison – including a five-year price freeze and billions of pounds in investments – “were not sufficient to prevent” the hampering of innovation and network infrastructure development.

CK Hutchison responded to the decision, saying the acquisition of O2 from Spain’s Telefonica would bring “major benefits to the UK not only by unlocking £10bn of private sector investment in the UK’s digital infrastructure but also by addressing the country’s coverage issues, enhancing network capacity, speeds and price competition for consumers.”

O2 said the ruling had little impact on their UK operations. “We work in an industry of constant change and have learnt how to manage that change better than most,” said an O2 spokesperson.

“Regardless of what happens next, we will continue to deliver for our customers as we always have.”

Meanwhile Liberty Global – the owner of Virgin Media – has said it would not rule out an acquisition of O2 if CK Hutchison’s bid was ultimately unsuccessful.

“It would be strange if we didn’t evaluate that option,” chief executive Mike Fries told analysts on a recent results conference call.

Kester Mann, a mobile operators analyst, at CCS Insight said non-UK buyers of O2 like Japan’s Softbank or Mexico’s America Movil were also plausible, but that the “most likely eventual outcome” was a sale to a private equity firm. “The collapse of the deal leaves both Three and O2 in a precarious position with uncertain futures in the UK,”

Mr Mann said. Retail prices for mobile services in the UK are currently amongst the lowest in Europe. The two other major UK operators are Vodafone and BT’s Everything Everywhere, known as EE.

The four major operators have paired off to share the costs of developing Britain’s 4G infrastructure. Unlike the main mobile operators, Virgin acts as a so-called “virtual operator” by paying wholesale prices to use the network infrastructure owned by BT’s EE. Owner Liberty Global recently ended negotiations for a major tie-up with Vodafone, and settled simply for a Netherlands joint venture.


HSBC to keep headquarters in London

Alexander Tredwell – Leaders in Specialist Professional Recruitment

UK banking giant HSBC has announced it is to keep its headquarters in London.

Concerns about stricter UK regulations led Europe’s biggest bank to launch a review into whether to move elsewhere, with Hong Kong seen as the most likely alternative.

But the bank said it had decided unanimously against the move and that London “offered the best outcome for our customers and shareholders”.

The decision was seen as a vote of confidence for the UK.

The bank has had its headquarters in the UK since 1993 but makes most of its money overseas, and Asia accounts for the majority of its profit.

Douglas Flint, the chairman of HSBC, told the Today programme: “London offered the best of both worlds for us. HSBC at its heart is a bank focused on trade and investment flows.

“The UK is one of the most globally connected economies in the world with a fantastic regulatory system and legal system and immense experience in dealing with international affairs,” Mr Flint said.

“The government’s made very clear its commitment to ensuring that that UK remains a leading international financial centre … We’ve ended up with the best of both worlds – a pivot to Asia led from London.”

HSBC is understood to have paid about £30m to advisors to help it reach the decision to remain based in London.

HSBC shares rose 1% in morning trading in London to 444.8p, but have fallen 17% this year. The bank’s Kong Hong-listed shares closed 4% higher on Monday.

However, analysts at Investec said HSBC’s decision was “regrettable” because it faced tighter regulations and the cost of the UK bank levy.

“We see HSBC’s announcement as a missed opportunity,” said Investec analyst Ian Gordon.

HSBC had been paying £1bn a year through the UK banking levy before the government changed the tax last year.

Mr Flint said “it was important that there was a change in the scope of the levy”.

“A levy based on an international balance sheet was a disincentive for a global group, and we made that point ever since the start of the levy. It was good to see that the scope of the levy changed to being a domestic impost, and that was important,” the HSBC chairman said.

However, Mr Flint denied that HSBC had forced the government’s hand in changing the banking levy.

“We had no negotiation with the government. The government was well aware of our view, and indeed the view of many other people who commented upon it, but there certainly was no pressure put, or negotiation.”

He added that the regulatory regime had “not been softened”.

HSBC’s decision was based on “a generational view” and not on “short-term dynamics”, Mr Flint said.

“It [the decision to stay] was based on a very thoughtful perspective on how economics will play out over the next 20 [to] 25 years,” he said.

HSBC said that London had an “internationally respected regulatory framework and legal system” and added that it also was “home to a large pool of highly skilled, international talent”.

It was therefore “ideally positioned to be the home base for a global financial institution such as HSBC”.

Part of the review was considering whether the increased regulation of the banking industry in the UK – in particular the increased tax burden – warranted moving elsewhere.

But in the last Budget, the Chancellor George Osborne introduced a gradual reduction in the bank levy on balance sheets – a move which particularly affected HSBC, because of its large balance sheet.

In 2014 it paid £750m of the £1.9bn raised by the government through that particular tax.

For HSBC itself, the decision wasn’t just about the tax environment in the UK.

There was also the problem of the regulatory environment in China – with the central bank causing nervousness among investors and volatility in the markets after intervening in the stock and currency markets.

Poorer news about the Chinese economy also focused minds at HSBC’s Canary Wharf headquarters in London’s docklands.

One interesting point to make about the decision is that whatever fears HSBC has about Britain possibly leaving the European Union, London’s attraction as a financial capital was more significant.

Which raises a challenge for those who argue that businesses could quit the UK if Britain were to leave the EU.

The board added that it had also decided to end the practice of reviewing the location of the group’s headquarters every three years, and would only revisit the matter if there was “a material change in circumstances”.

It stressed that Asia remained “at the heart of the group’s strategy” and that it was putting “particular emphasis on investing further in the Pearl River Delta and ASEAN region”.

Hong Kong’s Monetary Authority (HKMA) said it respected HSBC’s decision.

“The HKMA appreciates that for a large international bank such as HSBC, relocation of domicile is a very major and complicated undertaking,” said Norman Chan, its chief executive.

The Treasury welcomed the move.

“It’s a vote of confidence in the government’s economic plan, and a boost to our goal of making the UK a great place to do more business with China and the rest of Asia,” a spokesperson said.

The CBI business lobby group also said the announcement was “good news” because strong banks were “critical for the British economy”.

That sentiment was echoed by the BBA, the banking industry body and TheCityUK.

In line with other banks, HSBC shares have fallen sharply this year.

The stock is down 18% since the start of the year and more than 30% from last April, when the review into where to base its HQ was first announced.

The bank will report full-year results on Monday, 22 February. It is in the process of implementing a $5bn (£3.4bn) savings drive and cutting 8,000 jobs in the UK.


Lord Turner warns of indefinite low rates

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Former City regulator Adair Turner has warned that without radical policies, the UK economy could be stuck with low interest rates “almost indefinitely”.

He told the BBC “interest rates in the UK may not go up beyond 2% by 2020”.

The Bank of England’s rate has been at the record low of 0.5% since March 2009.

Lord Turner also warned about the dangers of peer-to-peer lending, which matches individual borrowers with lenders.

Peer-to-peer lending is one of the fastest-growing areas of financial services, which appeals to borrowers who have been turned down by High Street banks and savers prepared to take greater risks to make bigger returns.

“The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses,” he predicted.

“You cannot lend money to small and medium sized enterprises without someone doing good credit underwriting.”

But Christine Farnish, independent chair of the P2PFA, the industry body representing peer-to-peer lending, said Mr Turner’s comments “fly in the face of the evidence”.

“Since the industry began, default on loans are low, measuring between 2-3%,” she said.

“We only lend to creditworthy consumers and established small and medium-sized enterprises. Strict credit underwriting rules apply to all our members and this should not be confused with higher-risk forms of crowdfunding or lending to sub-prime customers,” she said.

Lord Turner also said that the possibility of the UK leaving the European Union “would be adverse for the UK economy” and was already “causing major destabilisation at a global level”.

“There is a great deal of nervousness that a UK vote for Brexit [to leave the EU] is another layer of uncertainty in an extremely uncertain world – uncertain economically and uncertain politically.”

It comes less than a week after Bank of England deputy governor Ben Broadbent told BBC Radio 5 live that the expected referendum was not yet causing problems for the UK economy.

“We have not yet seen, regarding investment intentions, any weakening of those of late, but obviously it’s something we watch pretty closely,” he said.

Lord Turner was chair of the Financial Services Authority until its abolition in 2013.

You can hear more of his BBC interviews on Wake Up To Money and Radio 4’s Today programme.


RBS ‘clean-up’ to push it into 2015 loss

Alexander Tredwell – Leaders in Specialist Professional Recruitment

A “clean-up” plan announced by RBS is set to hit annual profit by £2.5bn and will push it into a loss for 2015.

In a statement, RBS said it was setting aside another £500m to pay for PPI claims and £1.5bn for US litigation.

In addition, the taxpayer-backed bank will write down £498m from its private bank Coutts.

“I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank,” chief executive Ross McEwan said.

“We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses.”

The bank is also speeding up a plan to make payments into its pension fund to help deal with the £4.2bn deficit. The fund has 220,000 members and has been closed to new ones since 2006.

RBS is 73% owned by the government as a result of a bailout during the financial crisis.

It has not made an annual profit for seven years and is due to report results on 26 February.

Shares in RBS fell more than 5% in early trading, but then recovered somewhat to trade down by 3.7%.

When you are about to sell the house, it’s always worth a good clean up before potential customers arrive for a poke around.

That’s what’s happening at RBS and is what this morning’s announcement is all about. George Osborne, the chancellor, is keen to off-load the government’s 73% stake in the bank over the course of this Parliament.

Ross McEwan is clear today that he wants to put “legacy issues” behind the bank. That’s shorthand for the collapse of the bank in 2008.

The largest of those are the legal actions in the US connected to the failure of mortgage products.

RBS’s share price, at around 260p, is still a long way from 502p, considered to be the “in price” the government paid for its stake. The share price has sunk by 30% in the last year.

Clean up, yes, but investors will need to see an improved performance from the bank before that share price starts rising again.

On a conference call Mr McEwan refused to answer questions about what the measures meant for the sale of the government’s stake in the bank.

But he said that he thought the bank’s provisions for mis-selling PPI were now over.

“Based on what we know today, hopefully this is the final provision. Hopefully it is the end… this is it,” he said. The bank’s total costs for the scandal are now £4.3bn.

The PPI policies were supposed to protect people against loss of income or sickness, but were often inappropriate. Across the industry, more than £20bn has been paid to more than 10 million consumers.

Analysts warned that this had negative implications for Lloyds, the bank that has paid out the most for the scandal so far.

But Citigroup warned that this was not the end of the matter for RBS.

“We still see significant additional litigation charges in 2016, on top of the charges that have been announced today,” the bank said in a research note.

In addition, it expects earnings to be hit by the introduction of the UK bank tax, as well as continued low interest rates, because this affects its ability to profit from assets.

Alex Potter from Mirabaud Securities said: “I think what’s worrying the market is the fact that there is still no provision for a deal with the US’s Federal Housing Finance Agency, which has so far imposed the biggest fines.”

The bank is not allowed to put money aside until it is in substantive discussions with the regulator.

“I think this means no further stake sale this year [by the UK government] unless they suddenly announce a deal in the US,” Mr Potter added.


Oil price to remain low in 2016

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The oil price is unlikely to recover next year, according to the boss of the French energy giant, Total. The price of Brent crude is currently under $43 a barrel, down more than 60% since last summer, while US light crude is trading below $40 a barrel. US prices have not been this low for more than 10 years.

Total’s Patrick Pouyanne “doesn’t anticipate a recovery in 2016”. In fact, he thinks supply will grow faster than demand next year.

He is not alone. Last Friday, Goldman Sachs put out a note suggesting prices could fall a lot further.

“While [we are] forecasting oil prices over the next few months to be near $40 a barrel, or roughly where they are trading today, there could be another 50% to fall,” the investment bank said.

Renewed concerns about supply and demand imbalances pushed the oil price sharply lower on Monday, with Brent down more than $1 a barrel and US crude $1.30 lower.

Oversupply is the reason for the slump in prices over the past 18 months, largely due to US shale oil flooding the market. At the same time, demand has fallen due to a slowdown in economic growth in China and Europe.

This has hit not just the oil industry, but also oil-exporting countries. Many big oil producers such as Libya, Algeria, Nigeria and Venezuela need an oil price well above $100 a barrel to balance their budgets. With the price down near $40, they are having to sell assets to make up the difference.

Indeed, a recent report from US data provider eVestment showed that sovereign wealth funds in the oil-rich Gulf are pulling money out of global fund management houses at the fastest pace on record.

Many of these Gulf states are members of Opec, the group that controls about 30% of the world’s oil supply.

Understandably, many are furious that the oil price has been allowed to drop so low.

Historically, Opec has cut production to support prices but, led by Saudi Arabia, the group has resolutely refused to trim supply this time.

Saudi’s motivation is simple – to drive US shale producers out of business, believing that they will fall victim to lower prices long before the traditional oil producers of Opec.

The group met last Friday and agreed again to maintain supply at about 31.5 million barrels a day.

It could go even higher. Following a nuclear deal with six world powers in July and the imminent lifting of sanctions, Iran has big plans to increase oil production in the coming years, from about three million barrels a day now, to five million by the end of the decade.

At the end of last month, Iran overhauled the way in which it offers contracts to foreign energy companies in a bid to attract up to $30bn (£20bn) of new investment, with a view to increasing output by 500,000 barrels a day once sanctions are lifted.

And Opec believes its strategy is beginning to work, as small US shale producers, many of which are heavily indebted, struggle to cope with low oil prices.

Indeed, the International Energy Agency has forecast that US shale production will begin to fall next year.

Mr Pouyanne agrees. “Non-Opec supply will contract… by mid-2016 we should see the contraction in US production,” he says.

Presumably not fast enough to have any material impact on oil prices, according to his own predictions.


China’s biggest brokerage Citic in $166bn error

Alexander Tredwell – Leaders in Specialist Professional Recruitment

China’s biggest brokerage, Citic Securities, had overstated its derivative business by $166bn (£110bn) from April to September, according to the country’s securities association. The Securities Association of China said the firm inaccurately inflated the amount of its equity swap transactions in a report submitted in October. Citic said the error occurred due to a system upgrade and has been corrected. Probes have resulted in executives confessing to insider trading at Citic. In September, shares of China’s largest state-owned brokerage slumped after it reported that three executives, including its president, were under police investigation. The firm has been part of a crackdown by China’s regulators on irregular stock trading since mainland markets plunged dramatically in mid-June.

The association, which is partly overseen by the China Securities Regulatory Commission, said it was investigating the matter and would take further action if necessary. It did add that the error did not impact the month-end net size of Citic’s business. The brokerage told the Reuters news agency that it had amended the figures at the start of November and the size of its swaps business was $6.2bn. An equity swap is a type of derivative that refers to a cash exchange between realized gains on specific stocks and fixed interest rates over a certain period of time in the future. Shares of Citic Securities were down almost 1% in Shanghai in afternoon trade.


Marks & Spencer sees sales fall again

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Sales at Marks & Spencer have fallen for the six months to 26 September. UK like-for-like sales fell by 0.4% for the period. Sales of general merchandise, which includes the clothing division, were down by 1.2%. Food sales rose by just 0.2%. Both figures were in line with analysts’ expectations. The retailer said underlying profits rose by 6.1% to £284m, although after taking into account one-off items pre-tax profits fell 22.7% to £216m. Those one-off items included almost £27m on revamping UK stores and £22m on European store costs. M&S said that trading conditions were challenging, with the UK retail sector affected by unseasonal conditions that resulted in high levels of promotions, particularly in the first quarter. “In the second quarter we took a decision to focus on full price sales and discount less which affected sales performance,” the company said. It added that conditions would remain difficult: “Despite some improvement in consumer confidence, market conditions continue to be challenging in both the UK and the international markets.”

The company plans to concentrate on increasing food sales, gross margins and cash generation. M&S said profit margins at its non-food business had risen by 2.85 percentage points. Given the strong competition from other retailers, chief executive Marc Bolland has focused on improving margins and selling fewer items on promotion rather than trying to boost volumes. He told 5 live Breakfast the retailer was designing and sourcing more clothing itself, generating savings that would be partly passed on to customers. International sales fell 0.9% excluding currency movements or 5.1% in real terms. Performance in Europe was affected as M&S absorbed higher costs rather than raise prices.

Analysis: Kamal Ahmed

Underlying profits up, profit margins up and womenswear sales down. That is the continuing story of M&S and try as he might, Marc Bolland simply cannot get those key womenswear sales to move in a positive direction. He has decided – making a virtue of a necessity – investors are more interested in how much money M&S makes from each sale rather than the overall volume of sales. Every quarter, M&S trumpets its ever-increasing gross margin figure – arguing that fewer promotions means a full price sales and increased cash flow. Food sales, in a brutally competitive and largely falling market, are up slightly. In the past year, M&S’s share price has risen by 29%. Little wonder Mr Bolland has said he is staying for at least two more years.

The interim dividend was raised by 6.3% to 6.8p per share. Shares rose 3.8% to 540p in early trading. The stock is up by a third over the past 12 months. Richard Hunter, head of equities at Hargreaves Lansdown, said: “The largest challenge remains in the form of sales within general merchandise, where M&S is focusing on margin improvements by eschewing discounts and concentrating on full price sales. This buys the company some time to rediscover the magic potion which may tempt younger shoppers into its stores.” Analysts at Shore Capital said management was running the business effectively given trading conditions: “M&S has a cracking Food operation, where underlying performance is strong in a difficult UK market with sustained gains in market share.”


UK economic growth slows to 0.5% in third quarter

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The UK economy’s growth slowed in the third quarter of the year, weighed down by the performance of the construction and manufacturing sectors. Gross domestic product grew by 0.5% between July and September, the Office for National Statistics (ONS) said, down from 0.7% in the second quarter. The rate was also lower than the 0.6% growth predicted by many analysts. Part of the slowdown was due to the biggest fall in construction output in three years, a drop of 2.2%. The service sector, the biggest part of the economy, grew by 0.7%. However, output in the manufacturing sector declined by 0.3%.

“The slowdown is being led by the manufacturing sector, which is seeing a renewed recession as output has now fallen for three consecutive quarters, suffering a 0.3% decline in the three months to September,” said Chris Williamson, chief economist at research firm Markit.

“Manufacturing output has so far fallen 0.9% this year. Producers are struggling as weak demand in many overseas markets, notably China and other emerging nations, is being exacerbated by the appreciation of sterling.”

We’re not immune to the Chinese-led worldwide deceleration. And all the signs are that growth in the fourth quarter of the year will soften again. This doesn’t mean a painful recession is about to rear up and bite us. Annual growth for 2015 is heading for a healthy, if slightly below trend, 2.3%. But it does mean the ride into 2016 may get slower and bumpier.

‘Steady recovery’

The drop in construction output could have been influenced by particularly wet weather in August, the ONS said. “Overall, the picture of a steady recovery in the UK economy continues and we would now expect GDP growth of around 2.4% for the year as a whole,” said John Hawksworth, chief economist at accountants PwC. According to a poll by news agency Reuters on Monday, economists have pushed back their average forecast of when the Bank of England will start to raise interest rates to the second quarter of 2016 from the first quarter. This is the first estimate of economic growth for the July-to-September period and makes use of only half the data which will be used for the final estimate. Chancellor George Osborne said there were more “tough decisions” to come and that his Autumn Statement, due on 25 November, would include “long-term investments for the future”. Sterling fell to $1.5309 after the data, before rebounding to $1.5325, which is 0.2% lower than on Monday. “The market has pushed the first rate hike way out into the future, so I don’t think today’s GDP figures are going to have much impact in terms of that timing,” said Bank of Tokyo-Mitsubishi currency economist Lee Hardman.