Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Archive | November, 2016

FPC recommends looser liquidity demands

Posted on 29 June 2012 by

Rules stipulating how much cash, gilts and other liquid assets banks must hold in case of a crisis are to be relaxed, Britain’s financial authorities pledged on Friday, which could release tens of billions of pounds for lending to households and companies.

The June meeting of the Bank of England’s interim Financial Policy Committee took the decision to clarify and loosen banks’ liquidity buffers after noting that the “outlook for financial stability had deteriorated”.

    With lending to small companies falling and interest rates for companies and households rising, the FPC had become concerned that the perception of rules on liquid assets were standing in the way of credit flows and a sustainable economic recovery.

    But even with lighter liquidity regulations helping to get credit flowing, economists still expect the BoE’s Monetary Policy Committee to pump between £50bn and £75bn additional funds into the economy next Thursday by raising its £325bn tranche of quantitative easing.

    The FPC, now a year old, is an integral part of Britain’s economic and regulatory framework and seeks to eliminate the chance that the financial sector could again derail the wider economy.

    Still meeting in an interim form until the legislation giving the BoE supervisory duties for the financial system is passed, the committee currently oversees the BoE’s twice-yearly financial stability report and recommends regulatory changes for implementation by other bodies, such as the Financial Services Authority.

    The FPC laid the blame for the deteriorating financial stability outlook squarely on the sovereign and banking crisis in continental Europe. It noted that within the eurozone there had been a “sustained redistribution of international capital” reflected in deposits in peripheral banks moving to banks in core nations such as Germany.

    Were the peripheral eurozone crisis to deepen, the FPC worried that “[UK banks’] exposures to non-bank private sector borrowers in many of these countries are significantly larger”, even though their direct exposures to peripheral sovereign debt and banks is low.

    “If contagion spread, significant disruption would be likely through secondary channels, such as counterparty risk, funding market stresses and feedback from macroeconomic weakness,” a report from the FPC’s June meeting warned.

    One consequence of the heightened risks, the committee noted, was rising interest rates on mortgages and corporate loans even though UK banks’ underlying funding shortfalls were on course to be eliminated.

    In a bid to get more lending flowing from banks, Sir Mervyn King, governor of the BoE, made it clear that the authorities did not want banks to sit on their liquid assets, which are thought to be in excess of £500bn. The FPC recommended “that the FSA makes clearer to banks that they are free to use their regulatory liquid asset buffers in the event of a liquidity stress”.

    It added that banks should also use the almost £160bn of pre-positioned collateral available for transfer into cash at the BoE in the calculation of liquidity buffers. Andy Haldane, the BoE’s director of financial stability, insisted a significant amount of additional funding could be freed-up for lending that way.

    “Both of those are chunky numbers and suggest that were an element to be released, it would be enough to make a big impact on real economy lending in the UK,” Mr Haldane said.

    But economists complained about a lack of detail in the announcements and cautioned that banks might not use the additional liquidity buffers for lending.

    Kevin Daly of Goldman Sachs said the impact of the policies would depend on “the extent to which banks are prepared to reduce their liquidity buffers in response to the reduction in the regulatory minimum, and the extent to which banks are prepared to use these funds to lend”.

    Jens Larsen of the Royal Bank of Canada said markets should not fear that banks will dump their gilts holdings and go on a lending spree because the “vagueness of the communications and the lack of detail on quantities of reductions in liquidity buffers” so far prevented any real understanding of the likely effects.

    But even as the FPC pleased banks by loosening their liquidity requirements, the authorities reiterated their tough line that the banks should raise capital levels so that they are in a better position to withstand potential losses that might arise from the eurozone crisis.

    The BoE insists higher bank capital does not prevent lending, while commercial banks complain that it gives them an incentive to reduce the outstanding quantity of loans in order to increase their capital ratios.

    Philip Rush of Nomura said the effect of the consistent exhortation to increase capital “has been excessive and is contributing to the financial sector’s accelerated deleveraging”.

    While strenuously rejecting these charges, Sir Mervyn said the FPC was “born in difficult times” a year ago. It had been successful in limiting distributions of cash to shareholders and employees, but not in persuading banks to increase their capital levels, he added.

    He insisted the FPC was still not established in a statutory form and so was merely making recommendations. “From next year onwards,” he added, “we will have statutory powers and I think that’s bound to lead to quite a significant change.”

    Melrose in £1.8bn takeover of Elster

    Posted on 29 June 2012 by

    Melrose has clinched the acquisition of a big German manufacturer of utility meters for an enterprise value of £1.8bn, helped by the agreement of most of its shareholders for the biggest rights issue in the UK announced so far this year.

    David Roper, Melrose’s vice-chairman, said support from big investors for a £1.2bn rights issue to fund most of the deal to buy Elster was “fabulous”.

      Melrose is an engineering business that uses the principles of private equity groups to take control of manufacturing companies and improve profitability, with the aim of handing back hefty returns to shareholders.

      It has been hunting for acquisitions after last year losing out to Colfax of the US in its effort to buy Charter, the UK engineering company.

      More than 60 per cent of the rights issue has been underwritten by Melrose’s existing shareholders after Mr Roper and other Melrose executives spent the early part of this week telling them about the deal.

      Mr Roper said that Elster was a comparatively rare example of a “solid” engineering company in a good position in a global market, which was both available for purchase and had the potential for its profit margins to be improved.

      “Such businesses are few and far between,” he said.

      Elster’s meters measure and control the supply of electricity, gas and water in 130 countries.

      With revenues of $1.9bn in 2011, the company is considered to have the potential to turn into a leading supplier of so-called “smart” meters that use computer intelligence to help consumers and industrial groups to save energy.

      While based in Germany and listed on the New York Stock Exchange, Elster’s main shareholder until now has been CVC Capital Partners, a private equity group.

      The acquisition will be implemented principally by a tender offer to Elster shareholders totalling £1.5bn.

      Under this, each shareholder will receive $20.50, which is about 49 per cent above Elster’s share price on June 11, immediately before reports that Melrose was considering a bid for the company.

      The rest of the £1.8bn enterprise value is covered by new debt.

      As part of the deal, Melrose, which has been advised by JPMorgan Cazenove, has agreed a new £1.5bn debt package with banks. Some of the money replaces Melrose’s existing loans.

      The debt facility, at an interest rate of about 3 per cent, is the largest acquisition loan package in the UK in two years.

      Bank bailouts: another fix

      Posted on 29 June 2012 by

      Break out the cava. EU policy makers (Hello, Angela Merkel) have caved in to Spain and Italy by agreeing a deal on bank (and country) bailouts. Crisis solved? Hardly. The triumphalist reaction in Madrid is premature. True, this week’s EU summit agreed on breaking the bank-sovereign feedback loop, so stopping shaky banks from laying low their sovereigns – and vice versa. Unless politicians get cracking, it could take until the end of the year to put the plan into practice – and Spain may need its €100bn bailout sooner.

      The trouble is that despite EU agreement that future bailouts in the eurozone should flow directly to banks via the European Stability Mechanism, it first wants to establish a single eurozone bank supervisor under the European Central Bank’s aegis. That is in politicians’ hands. Centralising bank supervision is a decisive step towards eurozone banking union. But the precedent of the European Banking Authority, the regulator set up two years ago, is hardly encouraging: it still struggles with resources and national bickering.

        For Spain, the key thing is that, once the new supervisor is in place, those bailout funds will no longer need to sit on its balance sheet. The prospect of higher state debt had pushed Spain’s borrowing costs above 7 per cent in recent weeks. The yield on its 10-year bond fell on Friday to 6.4 per cent. Italy’s has also fallen to 5.8 per cent after it won agreement for the eurozone’s bailout fund to buy sovereign debt. Bank shares rose because the new bailout structure avoids handing governments preferred creditor status – a relief for bondholders.

        The new measures are not a total fix, but a good start. Execution will be critical. Direct investment in banks’ equity à la UK and US is still the cleanest model. Something for the new regime to get its teeth into.

        Email the Lex team in confidence at lex@

        Buy with care, landlords warned

        Posted on 29 June 2012 by

        A Porsche automobile sits on Victoria Road in London©Bloomberg

        Property investors need to research their next buy-to-let purchase with care, say industry experts, as latest figures signal that increases in rents are slowing – or even falling – in some areas.

        The average rent in England and Wales rose by 0.4 per cent to £712 in May, according to the latest Buy-to-Let Index from property agent LSL. In spite of this monthly rise, the rate of annual increase has slowed – with three regions recording an annual fall in rents.

          The East Midlands experienced the biggest fall – 1.5 per cent – followed by Wales and the North East, with declines of 0.7 per cent and 0.3 per cent respectively.

          Separate figures from Savills, the estate agent, reveal that investors in prime central London property have also been hit by reduced rental income. Its figures show that annual rent increases on prime London properties slipped into negative territory for the first time in two years, down 0.5 per cent year on year. Buy-to-let properties in prime north London suffered the biggest decline, down 5.1 per cent year on year.

          But with rental income helping to boost investors’ profits at a time of sluggish capital growth, should investors steer clear of areas where rents are falling?

          Steve Olejnik of Mortgages for Business, the buy-to-let mortgage specialist, says: “Investors shouldn’t necessarily avoid making new purchases in areas where rents are falling, but they need to do their homework. Research is incredibly important and, if carried out thoroughly, it will help investors make better, well-informed investment decisions.”

          Olejnik says investors should ask: Why are rents falling? Is the fall likely to continue? For how long? Will a lower rent cover the monthly mortgage payments and other outgoings? What effect will less rent have on yield?

          Management services boom

          More private landlords are seeking help running their buy-to-let property and paying agents for property management services.

          W A Ellis, the prime central London estate agent, has seen a doubling of new instructions since April 2011, as well as a 17 per cent increase in clients renewing their contracts.

          Buying agency Sourcing Property has recently launched its own property management service, following requests from clients for them to handle the management of their investment property.

          Its service includes obtaining market valuations from lettings agents, negotiating their terms and fees and managing the property once it is let. It charges 6 per cent of the annual rent.

          W A Ellis charges 6 per cent – or 5 per cent for portfolio landlords – on top of the lettings tenancy fee of 11 per cent of the annual rent plus any renewals.

          “As demand for rental properties increases and renting becomes a longer term prospect for many tenants, the expectations of the standard of the property and how it is maintained is heightened, especially for those with prime central London budgets,” notes Lucy Morton of W A Ellis.

          David Newnes of LSL Property Services agrees. “Rents may no longer be rocketing in all areas, but these regions can still provide good opportunities for sensible investment.”

          For example, Newnes points out that though rents in the West Midlands fell by 0.9 per cent in May, they are 4.6 per cent higher than three years ago, providing landlords with a healthy rental income. Meanwhile, yields on buy-to-let properties in the region average 5.9 per cent – higher than the national average.

          “Property investment has come a long way from the days of short-term speculators who would focus purely on capital gains. Investment decisions by landlords are being driven by the longer term fundaments of healthy yields, and crucially, strong tenant demand – which is vital to avoiding costly void periods,” explains Newnes.

          Even in regions where rent rises are slowing, or at a standstill, there will always be micro markets running at a different pace to the wider regional market, says Newnes.

          “Landlords who research tenant demand in their chosen area – and for particular types of accommodation – will limit the time that their prospective rental properties are vacant, not to mention boost rental income in the long run,” he notes.

          Focusing solely on areas where rents are rising, which suggests that tenant demand is outstripping supply, could still prove costly for investors, says Olejnik.

          “High rents can generate a faster tenant churn factor, which can prove very costly. Having to find new tenants regularly is expensive when you take into account void periods and upfront costs,” he says.

          “It might be better to take a lower rent and keep hold of your tenants for longer,” adds Olejnik.

          Landlords looking to make their next purchase can still obtain competitive mortgage rates. According to Andy Young of the Landlord Centre, a buy-to-let broker, in spite of the “enduring difficulties” in the eurozone, rates have remained relatively stable so far this year – in sharp contrast to residential mortgage rates.

          “There are some very competitive two-year discounted rates available and landlords are feeling confident that the underlying interest rate will remain low for some while,” says Young.

          For example, Hinckley and Rugby Building Society has a two-year discount rate at 3.25 per cent – 2.39 percentage points off its standard variable rate – available up to 60 per cent loan-to-value, with a £2,000 fee.

          Coventry Building Society also has a two-year tracker with a current pay rate of 3.80 per cent, available up to 65 per cent loan-to-value, with a £999 fee.

          For those investors seeking a higher borrowing, Kent Reliance has a two-year discounted tracker at 5.49 per cent for those with deposits of 15 per cent. It comes with a 2.5 per cent fee. It also offers a five-year fixed-rate deal at 5.29 per cent, available up to 75 per cent loan-to-value, with a 2.5 per cent fee.

          Eurozone off on journey to central control

          Posted on 29 June 2012 by

          Eurozone leaders have embarked on a process to surrender sovereign control of banks to a powerful central supervisor within six months, in a political pledge that kick-starts highly complex talks to forge a nascent “banking union”.

          Proposals will be hastily drawn up over this summer to give the European Central Bank ultimate power to oversee euro area banks. While leaders chose to empower the ECB in Frankfurt as the new supervisor, there are a host of unanswered questions, including defining its exact powers, the banks it covers and its relations with countries outside the new regime. “It is a big decision that opens a Pandora’s box,” said one senior official involved.

            François Hollande, the French president, hailed a historic deal that would be “a reality” by 2013. But some German officials are urging caution over the timetable and Angela Merkel of Germany, while endorsing the principle, pointed out all 27 EU countries still have a veto.

            The question will be whether the strong political commitment to cede power – made in the early hours of the morning at a Brussels summit – will survive months of gruelling negotiations. Creating a eurozone bank supervisor is a precondition to using the European Stability Mechanism, Europe’s permanent bailout fund, to inject capital into banks directly.

            One of the most sensitive points – not addressed in the statement – is scope. Mr Hollande wants “all the banks” in the eurozone to be covered. But most national authorities are alarmed at having to give up power and Germany is facing intense political pressure to maintain control of the politically powerful regional saving banks.

            Germany’s politically influential savings banks association, representing more than 400 local banks, said pan-European ECB supervision would be “disproportionate” unless confined to systemically-relevant banks.

            One option is to maintain an existing network of national bank supervisors under the ultimate authority of the ECB, which would have day to day responsibility for the biggest banks. If necessary, under certain circumstances, the central authority could reach into the patch of national supervisors.

            Other thorny issues include appointing a resolution authority, which would be able to intervene and wind up a failing bank, if necessary against the wishes of a national government.

            While Brussels now encourages separate resolution and supervision authorities, EU leaders have not addressed the issue of whether this should be the ECB and how it would interact with existing EU bailout funds.

            As part of these reforms, the ECB would also need to restructure to ensure its new bank responsibilities do not damage the independence of its core central bank functions.

            It will also need to define how it relates to other EU authorities and resolves disputes over enforcing rules, given it will wield formidable power. This will entail a revamp of the European Banking Authority, a pan-EU body that mediates between national supervisors.

            The supervisor may stretch beyond the euro area. The UK is standing outside the supervision regime and is calling for “safeguards” to protect the single market. But other non-euro area countries – whose economies are reliant on eurozone based banks – could still join.

            Some big EU banks uncomfortable with a system that excludes the UK. “London as Europe’s strongest financial centre has to be included. Financial crises don’t stop at the channel,” said Andreas Schmitz, president of Germany’s association of commercial banks including Deutsche and Commerzbank.

            While taking bold steps towards establishing a eurozone supervisor, EU leaders were more coy in endorsing measures to share risk for underwriting deposits – a key pillar of a banking union. “ Madame Merkel has had a very tough line on this issue of bank guarantees,” said Mr Hollande, in an indication of the complex negotiations ahead.

            BoE governor calls for revamp of Libor

            Posted on 29 June 2012 by

            The governor of the Bank of England has called for a complete revamp of Libor, the London interbank offered rate, the reference point for $360tn of financial products worldwide.

            Speaking two days after Barclays paid £290m for attempting to manipulate the rate, Sir Mervyn King said such an important metric should no longer be based on daily estimates from big trading banks.

              “We will make sure that this system that was rigged in favour of at least one institution and possibly others will be changed,” Sir Mervyn said. “We will end up with a new regime based on actual transactions. The idea we can base it on ‘my word is my Libor’ is dead.”

              The British Bankers’ Association, which has sponsored the rate since the 1980s, has launched a full review in the wake of an investigation that has drawn in nearly 20 banks and a dozen regulators on three continents. The BoE and the UK Financial Services Authority are participants so Sir Mervyn’s view is telling.

              The BBA said on Thursday that it was looking at whether trading data could replace the current system of asking banks to estimate their borrowing costs in 10 currencies. It also said it would ask the government to consider regulating the rate-setting process.

              Sir Mervyn said he had tried to push the industry to make similar changes in 2008, when media reports speculated that some banks were lowering their figures to make themselves appear stronger. Now that Barclays has admitted doing exactly that, change seems inevitable.

              Sir Mervyn’s statements drew groans from some in the London financial markets, who complained regulators should have acted sooner. “Now he’s got religion,” one veteran said.

              But changing the Libor process may prove tough. Alterations would have to be phased in carefully to avoid disrupting existing contracts, that include long-term bonds and 30-year mortgages.

              Finding market-based alternatives may also prove a challenge. One reason the BBA worked with the BoE to create the Libor system of daily estimates in the 1980s was to address the lack of a trade-based index.

              Since then, the sterling overnight index average, that covers overnight lending, and Ronia, for secured lending, have arrived but there are still no comparable indices for all of Libor’s 15 time periods

              Swaps mis-selling heaps woes on banks

              Posted on 29 June 2012 by

              Barclays and other British banks suffered another onslaught of criticism after the financial regulator said it had found evidence of them mis-selling interest-rate swaps to small and medium-sized businesses.

              Barclays, HSBC, the Royal Bank of Scotland and the Lloyds Banking Group – the latter are still supported by the taxpayer – agreed with the Financial Services Authority on Friday that they would compensate “non-sophisticated” customers after the regulator’s two-month probe found “serious failings” in the way customers were sold products meant to protect them from swings in loan-repayment costs.

                “The sector urgently needs to act to rebuild trust, demonstrate it understands the huge damage to its reputation and show that, where there has been wrongdoing, it will ensure people are held to account,” said Chuka Umunna, shadow business secretary, adding it was part of a “catalogue of wrongdoing” by the banks.

                The banks’ admission fanned the flames of a political firestorm raging since Barclays was fined a total of £290m on Wednesday by the FSA and US authorities for trying to manipulate the Libor benchmark rate.

                Neither the banks nor the FSA estimated the total compensation due to their small-business clients over mis-sold interest-rate swaps, but one bank said it was “not comparable” to the amount put aside as compensation for mis-sold payment-protection insurance, which analysts have estimated cost banks as much as £8bn.

                About 28,000 interest-rate products have been sold since 2001, the FSA said. While Lord Turner, FSA chairman, described these products as broadly positive, the FSA’s move underscored the notoriety that interest-rate swaps have gained worldwide.

                From Baltimore to Milan, pension funds and municipalities have complained that they were pressured into buying the products, or that risks were not fully explained.

                While Libor manipulation and interest-rate swaps mis-selling are separate scandals, they are interrelated.

                A class action filed in New York, in which all four banks are among 16 respondents, and which damages could technically rise as high as $1tn, alleges that banks pressured clients including the City of Baltimore into buying overly complex swaps linked to Libor – a rate that claimants allege the banks were manipulating for their own benefit.

                Barclays’ settlement, and particularly a US Department of Justice finding that on occasion Libor had successfully been manipulated, could be ”incredibly useful” to claimants, said Lianne Craig, a partner at Hausfeld, the law firm co-ordinating the Baltimore lawsuit.

                Back in the UK, businesses complained of high-pressure sales tactics and large fees to exit the swaps.

                Daniel Thwaites, the Blackburn-based brewer, had to pay £11.9m to cancel a swap. It has not yet been offered compensation.

                Richard Bailey, chief executive, said the arrangement was not linked to specific borrowing but designed to hedge against the cost of its debt rising, though it extended for 22 years, beyond any debt term.

                The move plunged the family-owned business to an £8.2m pre-tax loss for the year to March 31, 2011.

                Reporting by Caroline Binham, Brooke Masters and Jennifer Thompson in London and Andrew Bounds in Manchester

                Osborne urged to toughen banking reform

                Posted on 29 June 2012 by

                George Osborne is facing pressure to toughen up draft laws to quarantine risky investment banking from high street banking, as political anger over Barclays’ attempts to rig market interest rates continued unabated.

                Lord Lamont, a former Conservative chancellor, and Lord Myners, former City minister, both said the scandal over Barclays’ fixing of the Libor rate meant that tougher legislation was needed to clean up the banking sector.

                  The refusal of Bob Diamond to resign as Barclays chief executive has inflamed passions at Westminster, where Ed Miliband, Labour leader, said it was “very hard” to see how the bank could continue with its current leadership team.

                  Meanwhile Vince Cable, business secretary, spoke of a “massive cesspit in the banking system”, accusing some banks of “destroying good British business” by mis-selling interest hedging instruments.

                  Once the anger has subsided, Mr Osborne will have to work hard to convince some that his current plans to ringfence retail banking from “casino” operations in investment banking go far enough. Some have called for banks to be broken up.

                  The chancellor believes the plan, based on Sir John Vickers’ report on the future of banking, is sufficient, a view also shared by Sir Mervyn King, Bank of England governor, and Mr Cable.

                  But Lord Lamont said the government should revisit the Vickers proposals: “I think they should look at making it even stronger,” he told the Financial Times.

                  That view was shared by Lord Myners, who repeated his call for Mr Diamond to offer his resignation. “I can only see as a consequence of this a hardening of the government position on bank reforms and bank restructuring,” he said.

                  He said it was wrong for Barclays to be simultaneously carrying out complex financial deals, such as derivative transactions involving Libor, while having its risks simultaneously backstopped by the taxpayer.

                  “That is an important factor in driving the share price down – a fear of legislation,” Lord Myners said.

                  Mr Osborne’s aides say the Libor scandal had not changed the chancellor’s view on the Vickers proposals. One ally said: “You get a separation of cultures, you remove some of the investment banking culture from commercial banking.”

                  The chancellor is moving away from the idea of holding a new public inquiry into the affair – what some have dubbed a “Leveson for the banking industry” – amid opposition from Sir Mervyn, who might have expected to be a witness.

                  Mr Osborne’s team conceded that the Financial Services Authority inquiry into the Libor scandal, the Vickers report and the Commons treasury committee had already conducted a lot of work in the area.

                  The idea remains attractive politically to Mr Osborne, who believes the City excess of the last decade is a reminder of Labour’s role in setting up a “light touch” regulatory regime, even if some Tories at the time wanted it to be even lighter.

                  Ed Balls, shadow chancellor, on Friday endorsed the idea of an inquiry, although he wanted to extend its scope to cover the “self-regulation” model for the City overseen by the Tory governments of the 1980s and 1990s.

                  “I think there is now a case; we can’t just brush this under the carpet,” Mr Balls said.

                  Attention at Westminster will switch to the Commons treasury committee, which is gearing up to quiz Mr Diamond over the Libor-fixing scandal, an inquisition that will be avidly watched by Barclays shareholders.

                  No date has been fixed yet – MPs want to be fully briefed on the intricacies of the Libor market before the hearing – but it could take place as early as next week.

                  Mobile wallets put to test at Olympics

                  Posted on 29 June 2012 by

                  Mobile phones will take over from plastic cards and cash as the principal method of payment before the end of the decade, according to new industry forecasts. But payment providers admit that concerns about the security of cashless transactions – heightened by this week’s software failure at RBS – may deter consumers for some time.

                  Next month, the London Olympics will be used as a showcase for the way banks and phone operators expect us all to pay in the future.

                    A limited edition of Samsung’s Galaxy S3 mobile handset – the official phone of the games – will be loaded with Visa’s mobile payment application, Visa payWave, and given to athletes and selected triallists.

                    These users will then be able to buy items by waving their handsets in front of any of the 140,000 readers already installed in taxis and shops across the UK – including the Olympic Park.

                    Visa and Samsung’s collaboration is the latest in a growing number of ventures involving payment providers and mobile phone manufacturers promoting contactless payments.

                    Adverts are already showing Barclays customers how they can wave their phones over a reader to make payments of up to £15 by using “PayTag” – a small payment card that sticks to the back of a phone.

                    A quick swipe before lunch

                    Visa Paywave on the Samsung S3

                    Judging by the looks I got in the Prêt A Manger sandwich shop near the office, there is some way to go before paying for lunch by mobile phone becomes commonplace, writes FT telecoms correspondent Dan Thomas.

                    Visa is trying to make swiping a phone to pay as familiar as reaching into a pocket for spare change, using an ad campaign around its sponsorship of the Olympics to encourage take-up of the new system.

                    What it focuses on is speed: of both the athletes, and the phones they are being encouraged to use to pay at Olympic outlets. As I have discovered, payment is quick – almost too quick for me and the staff at Prêt. We stared with some puzzlement at the phone, curious whether the cash had in fact been debited after just one quick swipe of the handset.

                    I had loaded it with an initial £50, and linked it to my Barclaycard Visa credit card account for further payments. I had also adjusted the security settings so that any payment less than £20 could be debited without a PIN. It felt precariously swift. But I expect the first card payments did, too. I can always ask to use a PIN to control payments of any amount.

                    There are now around 140,000 UK outlets that accept contactless payments – from McDonald’s to the Post Office – but only a few thousand mobile phones are so far fitted with the SIM-card based technology.

                    It is an interesting way to pay – especially now that almost everyone carries at least one mobile phone – but its success will depend on many more retail banks deciding there is strong demand from customers.

                    Barclays customers can also use Pingit, a smartphone app that allows users to send money from their bank accounts to others by text message, and requires no specific handset or SIM card.

                    O2 has since launched a rival to Pingit called O2 Wallet – an app that allows customers to transfer up to £500 by mobile.

                    At the same time, the Payments Council has been working on a central database that will link any mobile phone number to a bank account – opening up payment by text to all bank customers.

                    However, in spite of these new services, the number of phones that can be swiped against a reader to pay for items is small.

                    In the US, mobile payments are more widespread, but have still failed to take over from traditional payment methods. Guess, the American clothing chain, said that only five or six customers used their phones to make payments when it took part in a trial run of the system.

                    Confusion about who provides mobile payments and how they work together has been held partly to blame.

                    Banks, payment brands such as Visa, mobile network operators, and handset manufacturers are all launching competing systems and retailers have had a difficult time deciding which to back.

                    Apple, for example, will not take part in mobile trials in the US by Google or PayPal.

                    Kevin Mountford, head of banking at price comparison website moneysupermarket.com, thinks phones will overtake plastic and cash as long as partnerships between the interested groups are successful. “We are seeing innovation in this area, so that’s a step in the right direction,” he said.

                    James Richards, head of mobile at Intelligent Environments, which provides digital banking software, believes the Olympics will be a useful introduction to new payments.

                    “There is a need for mass education about the way mobile payments work,” he argued. “A lot of contactless terminals in retailers are turned off and there is confusion about how they are used.”

                    Questions over the safety of payments via mobile phones are cited as one of the reasons why contactless mobile payments have so far failed to take off.

                    Visa says that once consumers use the system they will become less concerned. “Security is always the first thing that comes up in consumer research,” admitted Mary Carol Harris at Visa Europe.

                    Providers have built in a number of security measures to ensure phone payments are safe, she says.

                    Consumers can still insist a PIN is keyed in to verify every transaction, and can set another PIN to protect their phone handsets from misuse. Phone payments will also trigger further security checks if a certain spending limit is breached. “We have to take consumers on a journey,” said Harris. “We hope that showcasing mobile payments at the Olympics, when the eyes of the world are on London, will be an important part of that.”

                    Lehman to generate $1.5bn from Aurora sale

                    Posted on 29 June 2012 by

                    Lehman Brothers has sold the assets of its subsidiary Aurora Bank in a deal which should help generate about $1.5bn for creditors of the failed investment bank.

                    The group’s collapse in September 2008 triggered a lengthy bankruptcy process. It also left behind two mortgage-focused subsidiary banks, Delaware-based Aurora and Utah-based Woodlands Commercial Bank. Both the banking units were teetering on the brink of failure in late 2008.

                      Alvarez & Marsal, the restructuring firm charged with winding down the Lehman estate, took the relatively unusual step of injecting about $1.6bn worth of additional cash and liquidity into the two banks in November 2010, to prevent them from going into receivership and falling into the hands of the Federal Deposit Insurance Corporation. The company felt that rescuing the banks and preparing them for a whole or partial sale would eventually realise more value for the creditors’ estate.

                      Aurora’s $64bn worth of residential mortgage servicing rights have now been sold to Nationstar, owned by Fortress, Lehman announced on Friday. No price was announced.

                      Commercial mortgage rights were sold to Ocwen Financial and customer deposits were transferred to New York Community Bank, which has been snapping up assets from failed banks.

                      Last year Lehman sold Woodlands to MetLife, the insurer.

                      “During the past three and a half years, we successfully oversaw management of the two banks’ resolution processes, restoring regulatory capital which allowed the time necessary for the overall financial markets to recover from the economic downturn; averting enormous liability to the Lehman estate,” Doug Lambert, managing director of Alvarez & Marsal and chief executive of Lamco, a company set up by Lehman to manage the estate’s assets, said in a statement.

                      Some private equity groups and investment firms have been expanding into the mortgage servicing industry, in which companies collect monthly payments on behalf of lenders in return for a small share. Both Nationstar and Ocwen, whose shareholders include Goldman Sachs and BlackRock, are believed to be bidding on the mortgage business of ResCap, a subsidiary of Ally Financial, for instance.

                      “We remain focused on our performance-based servicing model that provides exceptional service and the benefit of Nationstar’s extensive resources to help customers achieve and preserve home ownership,” Jay Bray, chief executive of Nationstar, said in a statement.

                      Lehman had initially hoped to sell Aurora whole, hiring Keefe, Bruyette & Woods and Deutsche Bank to explore a sale. However the restructuring company eventually decided to break-up the business and sell it off in parts instead.

                      Aurora is one of the 14 mortgage servicing companies currently under a so-called “consent order” from regulators for their foreclosure practices. The bank will continue to operate and comply with the consent order, which requires the mortgage servicing companies to hire independent firms to review their foreclosures, Mr Lambert said.