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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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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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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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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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

SEC probes Goldman and Citi bond deals

Posted on 28 February 2014 by

Verizon-Vodafone Seen Yielding Over $240 Million in Fee Bonanza©Bloomberg

The Securities and Exchange Commission is investigating the way investors are given allocations of bonds in sought-after offerings, such as the Verizon Communications issue, according to people familiar with the matter.

Requests for information have been sent to banks including Goldman Sachs and Citigroup, as officials examine whether representations were made by customers in an attempt to procure bonds they otherwise would not get.

    This includes whether investors submitted bids under the guise of several different entities to secure a bigger slice of some of the hottest bond offerings.

    It is not clear which investor allocations are under review. Pimco, BlackRock and other large investors either declined to comment or did not respond to requests for comment.

    Goldman disclosed in its annual 10-K filing that it was under investigation for “allocations of and trading in fixed-income securities”, without providing details.

    The bank did not participate in the Verizon offering but is responding to regulatory inquiries over other large corporate issuances.

    The way big banks divvy up new bonds to their clients has shifted in recent years as large investors such as Pimco and BlackRock dominate an increasingly large portion of intensely competitive debt markets.

    Corporate bond issuance last year was marked by two supersized issues – a $49bn bond from Verizon Communications and a $17bn offering from Apple.

    Verizon’s deal was so large it did not just add to the pool of outstanding US corporate bonds, it briefly became the entire market by eclipsing the $18bn worth of corporate debt that typically changes hands in a normal day’s trading.

    Verizon’s debt offering in September last year came under particular scrutiny after BlackRock and a handful of other large institutional investors took outsized allocations, angering some smaller market participants. “With every single global bond manager out there looking for yields, that competition gets pretty fierce in some of these sales,” said Adrian Miller, director for fixed income strategy at GMP. “Bottom line: the laws of large numbers dictate that the small guys have a harder time in some of these deals that everybody wants to get in.”

    Three people familiar with the matter said the SEC inquiry started at the end of last year and involved multiple banks and several debt offerings by large companies.

    “Small buyside firms are angry that the big guys – the Pimcos, the BlackRocks – get these massive allocations and there’s nothing left for them,” said one banker. “We need to give huge allocations to the Pimcos and BlackRocks of the world.”

    Some banks and investors believed the probe, which appears to be at an early stage, is unlikely to find wrongdoing because there were no clear cut rules around how banks should dole out bond issuances among investors.

    A fixed income portfolio manager said: “Regulators have been trying to crack down on these practices for some time. Honestly, I’m not sure how they will do it because this is not illegal. It’s just favouritism.”

    Chris Keith, senior vice-president of fixed income at Adviser Investments, an independent money management firm, said: “Goldman has to build the book to sell $17bn of Apple bonds. Do they really want to go around to a guy like me who might be interested in buying $500,000 worth?”

    The SEC declined to comment. Verizon, Goldman and Citi also declined to comment.

    Additional reporting by Vivianne Rodrigues and Stephen Foley

    FCA tightens rules for payday lenders

    Posted on 28 February 2014 by

    Payday lenders operating in the UK are being told to check whether borrowers can afford their short-term, high-cost loans under new rules introduced to address poor practice.

    The UK’s financial regulator has announced its final verdict on plans to oversee consumer credit providers and debt management companies and says it intends to take a “hands on” approach.

      From 1 April, around 50,000 firms will be required to meet new requirements which include a ban on misleading adverts and provision of debt advice. Lenders will also not be able to automatically hit a customer’s bank account for funds if they miss a payment and cannot roll over loans more than twice.

      The UK’s “Wonga economy” has ballooned over the past few years, which has led to growing criticism from politicians, debt charities and consumer groups.

      Last year George Osborne, chancellor, told the regulator that it had a duty to impose a cap on the costs incurred by borrowers. This is expected to be put in place on 2 January 2015.

      “Millions of consumers access some form of credit each day, from paying for everyday goods by credit to taking out a payday loan. We want to be sure that the market works well when people need it – whether that’s for one day, one month or longer,” said Martin Wheatley, chief executive of the Financial Conduct Authority.

      “Our new rules will help us to protect consumers and give us strong new powers to tackle any firm found to be overstepping the line.”

      Regulators under pressure over AO listing

      Posted on 28 February 2014 by

      Bolton based AO.Com at their distribution centre in Crewe Pictured inside the plant Date taken 24 January 2014©Mark Waugh/

      Regulators are coming under pressure to improve pre-flotation disclosure of information to investors, following this week’s controversial listing of AO World, when shares in the online retailer jumped 33 per cent on its first day of trading.

      AO’s pathfinder’s prospectus was circulated to potential investors on Thursday last week. The shares were priced on the following Tuesday and floated on Wednesday – giving institutions only four working days to consider the document.

        The timetable was shortened because the shares had been pre-marketed and it had became clear that demand from investors would be high, said people familiar with the process.

        But fund managers – through their trade body, the Association of British Insurers – have been urging the Financial Conduct Authority to push for the earlier publication of prospectuses, even though the rules are set at European level.

        The ABI argues that publishing the prospectus earlier in the IPO process would enable investors to be better prepared and give more incisive feedback on the company and its valuation ahead of setting a price range.

        “The AO prospectus did come late, which does worry you as it makes you think the company wants to get away with as little scrutiny as possible,” said the head of European equities at a UK fund management group on Friday.

        Chris White, head of UK equities at Premier Asset Management likened the marketing process to last year’s Royal Mail float. “A lot of the shares went to a favoured list of investors who had been pre-marketed to, which left a lot of investors unhappy – including us,” he said.

        The Top Line: Grey areas in flotation

        Matthew Vincent

        Pitfalls of ‘never-mind-the-details-look-at-the price’ mentality, writes Matthew Vincent.

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        AO also refused to disclose to how much of its annual profit comes from selling product protection plans on appliances, on behalf of insurer D&G.

        Its prospectus showed accrued income on AO’s balance sheet of £17.9m, primarily from the commissions it expected to earn on the plans, but the company would not say how much of this was recognised in its profits each year. People close to the group said investors who had bought shares were “comfortable” with the situation.

        However, concerns over the AO flotation do not appear to have slowed the IPO bandwagon – with Poundland, the discount retailer, and Pets at Home, the seller of everything from rabbits to cat collars, both announcing their prospective valuations on Friday.

        Poundland expects to be valued at up to £750m, while Pets at Home’s indicative price range gave it a market capitalisation of up to £1.3bn. Pets at Home will also come to the market with £275m of debt, giving it an enterprise value of up to £1.58bn.

        Both companies have indicated price ranges close to those expected when it first emerged that they were considering a listing. The expected valuation of AO escalated in the months ahead of the float.

        A lot of the shares went to a favoured list of investors who had been pre-marketed to, which left a lot of investors unhappy – including us

        – Chris White, Premier Asset Mgt

        ETX Capital, a financial spread betting firm, said it expected Poundland and Pets at Home to close significantly higher on their first day of trading. Bankers said the book on Poundland was already covered at a “good price”. There was also enough demand for all of the Pets shares, said people familiar with the situation.

        But one institutional investor said he was surprised at the sorts of valuations being mooted. “I’m pretty amazed that people are paying these sorts of prices,” he said. “It probably makes me a bit more cautious about everything coming.”

        Tomas Freyman, director of valuations at BDO, the advisory group, said flotations such as AO appeared to have thrown standard valuation models out the window. “Every company I speak to now is thinking of an IPO,” he said.

        “Valuations are becoming more stretched and we are seeing a few more ‘blue sky’ companies trying to raise money, encouraged by the current buoyant market conditions,” said Premier’s Mr White.

        UK day-trading practices under scrutiny

        Posted on 28 February 2014 by

        For a forex trader, Andrew Argent has a surprising view of retail foreign exchange trading. “I would say there is a 97 per cent failure rate,” the former plumber turned day-trader says.

        Sitting on a black sofa in the Essex-based venue he founded in 2012, Mr Argent recounts how he used to tell aspiring day-traders that if they could not sustain themselves for at least a year, they should not join his private-member club.

        Number crunch

        Number crunch

          “I have seen people using a credit card to pay for a £20,000 one-year trading course and then having to sell their house because they lost too much money,” he says speaking from his small trading floor in Brentwood, a 37-minute train journey from London’s City centre, the global heart of forex trading.

          A dimly lit part of the trading world, forex has been thrust into the spotlight by global regulatory investigations into banks’ alleged manipulation of benchmark currency prices.

          Retail trading has not been part of these probes but a – completely unconnected – fine this week against online foreign exchange group FXCM has highlighted a small corner of the forex market where several hundred thousand amateur traders in the UK are lured by promises of quick riches.

          Britain’s markets watchdog fined US-based FXCM £4m for failing to pass on profits generated from price movements in the time between placing and execution of an order. It also forced FXCM to compensate its UK retail customers with £6m for profits that have been withheld.

          The fine – which relates to activity until 2010 and which FXCM calls a legacy issue – shines a light on the practices of a spread betting sector that some insiders claim is systematically making profits to the detriment of their clients.

          US data underpins this allegation. Only about one-third of retail forex traders in the US made a profit during the third quarter of last year, according to numbers reported by brokers to the Commodity Futures Trading Commission.

          The numbers follow a consistent pattern over many years. Industry insiders estimate that in the less regulated UK market more than two-thirds of traders will regularly lose out.

          Britain’s markets watchdog fined US-based FXCM £4m for failing to pass on profits generated from price movements in the time between placing and execution of an order

          One reason for the high loss rate is the spread. The difference between the buying and selling price of a currency already reduces the probability of making money in a market where punters typically make many quick intraday bets on currency swings.

          Most retail brokers stack the odds even more against the forex trader by gathering a host of information about the trader’s sophistication and trading style. Depending on their likely performance, they will either be placed into different brackets or “books”.

          The “a-book” minority are usually profitable traders and the broker hedges their orders. The majority, however, is being placed into the “b-book” where the broker makes the opposite bet to the punter.

          “If you systematically hedge trades placed on your platform you want the trader to make money. But if you hold on to the opposite side of a trade, you want them to lose money as you will make every dollar they lose,” says Antony Broadbent, former chief executive of Oanda Europe, a forex trading firm. He adds that this could motivate brokers to manipulate prices or trigger “stop-losses” that automatically lock in a loss when the price falls too far.

          Brendan Callan, chief executive of FXCM Europe, says that, unlike much of the rest of the sector, his firm is transparent and gives the trader a choice of the book he wants to be in. “At many other firms, clients are not made aware of what book they are falling into. This is an atrocity.”

          A number of firms, such as Vantage FX, even state in their UK client agreement that ‘we do not owe you any obligation of best execution and do not agree to obtain the best possible price for you’

          Potential losses are amplified as brokers in the UK – unlike in many other jurisdictions such as Hong Kong or the US – are allowed to offer as much leverage as they like. Some firms give up to 500 times leverage, which can quickly wipe out a trade if the price drops even a little bit.

          The FCA is now scrutinising 40 banks, brokers and asset managers to see if they are applying the best execution rules properly in a thematic review that is expected to be finished by the end of the second quarter.

          But a number of firms, such as Vantage FX, even state in their UK client agreement that “we do not owe you any obligation of best execution and do not agree to obtain the best possible price for you”. A Vantage FX spokesman said these were “lawyers’ words really” which were in the client agreement because a partner firm based in Australia is executing the orders.

          Mr Argent, who also is a property owner and catering entrepreneur, says he is day-trading more as a hobby and virtually all of his members – ranging from landlords to underground night shift workers – have different forms of income.

          Yet, against the odds, a tiny number manage to outsmart their brokers. A broker was once wondering why there were so many technical failures with lossmaking trades of a highly successful Chinese trader. They ultimately found out that he always placed his trades on a computer connected to an archaic modem while at the same time watching currency prices on another computer with a high-speed connection. If the price moved against him, he would simply unplug the modem.

          Treasury eyes penalties for empty homes

          Posted on 28 February 2014 by

          The Treasruy is looking at the best way to tax high-end London property©Bloomberg

          The Treasruy is looking at the best way to tax high-end London property

          Danny Alexander, the Treasury chief secretary s looking to target property investors who buy expensive homes only to leave them empty.

          The move comes as the coalition tries to put itself on the side of ordinary families struggling to find a home.

          With the Budget only weeks away, ministers are again grappling with questions on the best way to tax high-end property in London, which continues to attract international investors despite repeated tax rises in the sector.

          The Treasury’s focus this year has moved to the so-called ghost mansions or uninhabited upmarket flats scattered across London’s most desirable boroughs, bought by investors but then left empty.

          “From a social policy point of view we are worried about all of these people buying houses and leaving them empty when thousands of families don’t have anywhere to live,” said one official close to the Liberal Democrat chief secretary.

          In The Bishops Avenue, Hampstead, some homes have been left to rot and have been taken over by wildlife. An investigation by the Evening Standard newspaper found more than 700 empty expensive homes, worth a total of £3bn, from Wimbledon and Richmond through Kensington and Chelsea to Hampstead.

          Treasury officials are looking at the taxation of such empty homes and why some councils seem reluctant to use their power to charge 150 per cent of council tax on homes that have been empty for at least two years.

          Boris Johnson, Tory mayor of London, has urged other boroughs to follow Camden council in applying the 150 per cent rate.

          Andrew Frost, lead director of UK residential at Jones Lang LaSalle estate agents, said: “Large London houses in Mayfair and Belgravia have for decades been pied-à-terres, not always occupied. But encouraging occupation of those homes is not going to solve London’s housing crisis.”

          An oligarch’s guide

          An oligarch's guide

            The Treasury has increased taxes on high-end property transactions by hundreds of millions of pounds over the past few years, mostly recently by the 2012 introduction of higher stamp duty land tax rates and the annual charge for “enveloped” property held in a corporate structure. Last year, it announced the imposition of capital gains tax on foreign-owned property which is set to bring in £125m over the next five years.

            However, the new taxes have so far brought in nearly five times the sum the government expected. By December last year, the annual tax on enveloped properties had collected £92m, while the stamp duty land tax on such properties brought in £70m in 2012-13.

            Just 1,100 people who owned properties through offshore companies were initially expected by the Treasury to pay the annual tax, which ranges from £15,000 to £140,000 a year depending on the value of the property. Together with the new 15 per cent top rate of stamp duty, it was originally expected to bring in £35m a year.

            The Treasury believes it is too soon to draw conclusions about why revenues exceeded expectations, which could be explained by enveloping being more widespread than initially thought, a higher than expected proportion of properties being in higher price bands or fewer properties than expected being taken out of corporate ownership structures.

            Advisers said a large proportion of property owners had decided against “de-enveloping” their properties. Some wanted to preserve their anonymity but for many the biggest factor in their decision was wanting to avoid triggering a capital gains tax charge, 28 per cent of the gain, when they removed the property from the structure.

            Inheritance tax planning was another important consideration for many older non-residents and “non doms” – wealthy foreigners living in Britain who keep their foreign income outside the UK tax net. Removing a property from its corporate envelope exposes it to inheritance tax.

            In depth

            UK house prices

            For sale signs uk

            Price indices have presented wildly contrasting pictures of the health of the housing market – according to some the boom is back, while to others the slump staggers on

            Ros Rowe, head of property tax at PwC, the professional services firm, said it would not be surprising if the Treasury considered raising extra tax on enveloped property. “You can see the government might look at this and say, maybe you could squeeze a bit more.”

            Even with the charge, the annual ownership costs for a £2m home in the UK mirror those in the US, according to research by agent Knight Frank.

            Lucian Cook, director of residential research at agent Savills, said the introduction of stamp duty on enveloped property had hit the price of London’s most expensive homes. “It certainly has tempered the price rises and taken some heat out of the market,” he said. “Any further increase in rates would undoubtedly have an effect.”

            Average house price growth in London’s prime boroughs has been overtaken by that of less well-heeled areas in the past year. Land Registry figures released on Friday showed that the biggest price rises in the past year have been in Hackney, Wandsworth and Waltham Forest. Prices in all three areas grew more than 17 per cent year on year. By contrast, prices in Kensington and Chelsea grew 11 per cent.

            Aviva appoints finance director

            Posted on 28 February 2014 by

            Mark Wilson, chief executive of Aviva, has poached another associate from his time working in Asia, appointing a leading banker as the FTSE 100 insurer’s new finance director.

            Tom Stoddard, the Blackstone banker who formerly advised AIA, the pan-Asia insurer that Mr Wilson used to run will join Aviva in May. He has been advising the insurer since Mr Wilson took the helm of the UK-based insurer last year.

              His appointment comes just one month after Pat Regan, the incumbent who missed out on the chief executive job, quit the insurer to join Australian rival QBE.

              The speedy hire comes at a time when several big financial services companies are searching for a finance director. In the insurance sector alone, both Old Mutual and Standard Life are also looking to fill the vacancies. Standard Life has been trying to find a replacement for Jackie Hunt for almost 10 months.

              Executives complain the Prudential Regulation Authority is taking a tougher line on appointments, especially of candidates outside the industry. But Aviva said regulators had already approved Mr Stoddard’s appointment.

              As head of global financial institutions advisory at Blackstone, Mr Stoddard has been advising Mr Wilson over the past year on how to rebuild Aviva’s balance sheet.

              The duo began working together when AIG was eyeing a listing of its Asia arm AIA. The plans were put on hold and Prudential of the UK made a bid, which was fought by Mr Wilson. The contentious Pru deal fell through and the listing ultimately went ahead.

              Blackstone also worked with Mr Wilson on various prospective private equity deals he looked at in Asia between his jobs at AIA and Aviva.

              As part of a wider management overhaul at Aviva, Mr Wilson has also brought in two former colleagues from AIA since he joined: Nick Amin and Khor Hock Seng. He has also promoted some existing Aviva managers and executives including David McMillan, Maurice Tulloch and Jason Windsor.

              Aviva unveiled the finance director appointment ahead of its annual results next week, which will detail its financial performance during Mr Wilson’s first year in charge.

              Profits are expected to be dented by flood-related losses in Canada and the UK. Investors will want to see evidence of underlying progress on cash generation, cost savings and plans to revitalise underperforming businesses.

              Renminbi’s fall marks seismic shift

              Posted on 28 February 2014 by

              Chinese one-hundred yuan banknotes are arranged in a bowl for a photograph in Hong Kong, China, Tuesday, December 10 2013©Bloomberg

              Compared with the recent turmoil of double-digit currency devaluations and political unrest in other emerging markets, a modest fall this week in China’s currency was an unlikely cause for global alarm. But, as with many things, China is different.

              An unexpected slide in the renminbi – supposedly carefully managed and stable – led to a surge in speculation about Beijing’s control over the world’s second-biggest economy and rattled financial markets, at least until attention was diverted by Ukraine.

              Going down

              Going down

                In the past nine trading days, the renminbi has dropped around 1.4 per cent against the dollar to Rmb6.14 – levels not seen since last summer. The week-long fall is the steepest since 2005, when China unhooked its currency from the dollar.

                Whether the currency’s drop is just a blip or hints at bigger problems will be crucial for other emerging markets – with greater use of the renminbi increasing contagion risks – and in turn developed economies.

                How much the world should worry is a controversial question, however.

                “The majority of people are sanguine and then there is a small group which is highly critical. It is not that they are looking at different data – which we all know is opaque – but it is differences in interpretation that make some people very worried,” says Andrew Milligan, head of global strategy at Standard Life Investments. “It is difficult with China to have shades of grey.”

                The renminbi was long viewed as a one-way bet. Since China last loosened the controls on its exchange rate in 2010, the currency has risen 10 per cent against the US dollar. That slow, steady appreciation was backed by rising capital inflows, strong economic growth and the broader feeling that China had arrived as a global powerhouse.

                China’s currency has also been carefully managed by the government. Its exchange rate is fixed each day by the central bank and can only rise or fall by a maximum of 1 per cent. Such low volatility, and the near-guaranteed appreciation, made the renminbi a popular and lucrative bet, especially for those willing to take on leverage or dabble in structured products, hundreds of billions of dollars of which have been sold by banks in the past year.

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                While this week’s currency decline might appear small, both the speed and the direction have made it a seismic shift. Scotiabank analysts described the move as a “bloodbath”.

                Some investors have sensed something sinister, and raised concerns that China was seeing a rapid outflow of capital as economic conditions worsen. Recent data showed manufacturing in contraction and a property market on the turn. Worries about rising defaults in the shadow banking system have heightened fears that China might yet face an economic hard landing.

                The currency sell-off also carries echoes of last June, when a spike in China’s interbank lending rates upset markets worldwide. At one point, overnight borrowing costs within the mainland leapt to 25 per cent, with some questioning whether the whole Chinese financial system was cracking after years of rampant credit growth.

                My guess is that this [currency slide] is deliberately engineered, it is not an accident since they [the Chinese authorities] have managed the process of appreciation extremely well. But the amount of things going on in China means it is very difficult to interpret

                – George Magnus, a senior adviser at UBS

                Chinese authorities themselves have said that “market forces” are behind the move in the renminbi. The State Administration of Foreign Exchange (SAFE), which manages China’s FX reserves, said the week-long drop was nothing unusual and should not be over-interpreted.

                However, most China-watchers believe the currency slide is not a symptom of some deep malaise, but rather an engineered policy by the authorities to stamp out currency speculation, introduce two-way volatility and stem the tide of “hot money” inflows. This week’s move could also pave the way for a widening of the daily trading band.

                “My guess is that this is deliberately engineered, it is not an accident since they have managed the process of appreciation extremely well. But the amount of things going on in China means it is very difficult to interpret,” says George Magnus, a senior adviser at UBS.

                “It’s very different from June. If it’s the financial system crashing, you should see interbank rates moving higher,” says Wei Yao, China economist at Société Générale. Current interbank lending rates are at their lowest in almost 12 months, and have fallen sharply since the start of the year. “It is intervention from the central bank,” Ms Yao adds.

                Hamish Pepper, FX strategist at Barclays, says the People’s Bank of China and SAFE remain in control of the market, and are using their weight to ward off speculators.

                “What the PBoC are trying to do is break the assumption in the market that the renminbi will always appreciate,” says Mr Pepper. “We’re still talking about a very managed exchange rate . . . That control that they have in the foreign exchange market is just one example of the control that they have over the broader economy.”

                For fresh clues about China’s prospects, investors will watch closely next week’s National People’s Congress, which is expected to provide guidance on 2014 growth and the economic reform plans. Regardless of the outcome, many will remain wary.

                “Is there a problem or two with China? Yes, there are a series of complex problems,” says Mr Milligan at Standard Life. “Are they likely to erupt into a crisis in the near term? Probably No. Does this mean the Chinese economy is likely to slow because the authorities have less room for manoeuvre? Certainly.”

                Britannia directors hit back at regulator

                Posted on 28 February 2014 by


                Former directors of Britannia Building Society have written to MPs to challenge evidence given by the UK’s top banking regulator, claiming he was wrong to say their lender would have collapsed without a takeover by the Co-operative Bank.

                In a letter to Andrew Tyrie MP, chairman of the Treasury select committee, the former board members said Andrew Bailey, the head of the Prudential Regulation Authority, had been incorrect to argue that losses at Britannia were a major cause of the Co-op Bank’s subsequent woes.

                  The directors, including Rodney Baker-Bates, who was chairman from April 2008 until the merger, claimed that two-thirds of the £1.5bn capital hole that felled the Co-op did not relate to Britannia. The merger in 2009 “was not a rescue of either party”, they wrote in the letter published on the TSC’s website.

                  In his appearance before the TSC on February 11, Mr Bailey told MPs that the takeover of Britannia had taken the mutual “out of the limelight” during a turbulent period for the banking sector.

                  Asked if the lender would have failed if not for the merger, he said: “Bear in mind I was responsible for resolution at the time and bear in mind the febrile conditions at that time, my view at the time was, yes, it would.”

                  The former Britannia directors said they were not aware of any conversations or correspondence from regulators during the period of the merger which suggested Britannia was anything other than a going concern.

                  They cited Clive Adamson, the regulator responsible for supervising Britannia at the time of the merger, as saying the takeover was not a rescue.

                  In his testimony to the TSC, Mr Adamson also said that the Britannia had been running a “higher-risk business model” and would be safer as part of a larger group. He told MPs in January it was “hard to speculate” if it would have survived on its own or not.

                  The Bank of England declined to comment on the former Britannia directors’ letter. However, Mr Bailey has previously strongly disagreed with claims by Neville Richardson, who led Britannia before the merger, that there had been no big problems with the mutual’s loan book.

                  The Co-op Bank was last year forced to launch a recapitalisation after a £1.5bn hole appeared on its balance sheet. It is 70 per cent owned by bondholders, including several US hedge funds.

                  In 2011 the group was selected as preferred bidder for 630 Lloyds Banking Group branches. That deal collapsed because of the Co-op’s capital problems. Mr Baker-Bates joined the Co-op board after the Britannia merger.

                  Separate emails from Mr Baker-Bates to colleagues released on Friday reveal his concerns about the proposed Lloyds branches deal, which he voted against in 2012 along with fellow Co-op Bank director David Davies.

                  In one, dated July 13 2012, he said that while the proposed purchase price was “attractive”, the Co-op Bank’s capital ratio was stretched and “will need accounting engineering by KPMG”.

                  He added: “I know there is great ‘political’ support [for the deal] but so there was for the original HBOS/Lloyds deal which brought Lloyds to its knees and is why this is all happening.”

                  Citigroup: Banamex bother

                  Posted on 28 February 2014 by

                  Pedestrians walk outside a Banamex bank branch©Bloomberg

                  The fraud was linked to Banamex loans to Oceanografia

                  Good news, Brady Dougan! It took a few days for dirt to kick up around another big bank, after Credit Suisse got in trouble over clients and tax evasion – but Citigroup delivered eventually. The bank said on Friday that 2013 earnings would take a retroactive hit after fraud in its prized Mexican unit, Banamex.

                  These unpleasant situations have, first, a financial cost. Banamex lent about $585m to an oil services company to finance receivables from Pemex, the state-owned oil company. According to an internal memo from Citi, it appears that the invoices from Oceanografia – processed by a Banamex employee – were falsified to show approvals from Pemex. It is unclear how many people were involved but as much as $400m was misappropriated. The fraud will reduce 2013 net profit by $235m after taxes, or 1.7 per cent to $13.7bn. (The cut in the fourth quarter is about 9 per cent.) Return on equity was thus 12 basis points lower at 6.9 per cent.

                    A few hundred million dollars does not break a bank the size of Citi. But it is not inconsequential either, given the bank’s low level of profitability (though Citi, depending on the ensuing investigation, may be able to recover some damages).

                    But there are broader implications. True, banks extend risk and sometimes they get burnt. But the issue here is not one of lending to a company that fails; it is fraud. And that raises questions about the bank’s controls and credibility. The inquiry is ongoing and Citi believes the fraud is isolated. But naturally as part of the post mortem, Citi has begun a review, throughout Banamex and the rest of bank, of programmes similar to the one at issue. That raises the question of what else may be found, and the cost of that in both dollars and perception. Citi already faced questions over souring loans to housebuilders in Mexico.

                    The Oceanografia loans are a tiny part of Citi’s loan book. But the financial crisis has made everyone alert to evidence big banks are too big to manage: allegations of brokers in Switzerland helping US clients avoid taxes or questionable and costly trading within a bank’s own investment office; fraud in Mexico; and so on. This stuff adds up.

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                    Homeowners could end up paying £2bn more if the bank rate rises

                    Posted on 28 February 2014 by

                    File photo dated 08/08/12 of the Bank of England. Inflation is set to dip below the Bank of England's 2% target for the first time in more than four years, thanks to retailers slashing prices and lower fuel costs. PRESS ASSOCIATION Photo. Issue date: Tuesday February 18, 2014. Many economists believe official figures today will reveal a fall in the Consumer Prices Index (CPI) to 1.9% last month from 2% in December, which will mark the first time inflation has dropped below the target since November 2009. See PA story ECONOMY Inflation. Photo credit should read: Yui Mok/PA Wire©PA

                    UK homeowners face a £2.2bn increase in mortgage repayments by December 2015 if the Bank of England raises interest rates, according to a report by Barclays Mortgages.

                    The increase is based on the bank rate rising three times to 1.25 per cent, which economists consider the most likely scenario.

                      This is expected to mean that the average household would pay an extra 3 per cent on mortgage repayments, costing families £252 more a year.

                      However the report, based on data from the Centre for Economic and Business Research, said UK borrowers could pay as much as £5bn more by the end of 2015 in the most extreme scenario.

                      This “drastic but potential” situation assumes there are five rate rises between now and the end of 2015, taking the bank rate to 1.75 per cent.

                      Andy Gray, managing director of mortgages at Barclays, said: “The overarching insight is that rates will rise in the medium term and so mortgage customers should be aware of the impact of any rises on their finances and review their mortgage arrangements accordingly.”

                      Increasing rates could leave many homeowners at risk of falling behind on repayments.

                      The Financial Conduct Authority last week published a report into mortgage lenders’ arrears management, asking them to identify customers who could fall behind on repayments if interest rates rise and have strategies in place to treat them fairly.

                      AudioMortgage rates, investing in biotech, and with-profits

                      When mortgage rates rise, how bad will it be? Jonathan Eley and guests also discuss whether the UK biotech sector is set for a boom, and whether with-profits policies are worth retaining

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                      Yorkshire Building Society said earlier in the month that it will refund £8.4m to 33,900 customers in arrears, as many were incorrectly charged fees for falling behind on repayments.