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Euro suffers worst month against the pound since financial crisis

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RBS falls 2% after failing BoE stress test

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China capital curbs reflect buyer’s remorse over market reforms

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Archive | November, 2016

Counting the cost of Scotland saying Yes

Posted on 30 May 2014 by

If you believe the bookmakers, there is roughly a 30 per cent chance that on September 18 the people of Scotland will take a giant step into the political, economic and financial unknown by voting to leave the UK.

The consequences of a decision to end Scotland’s three century-old political union with England would be both far-reaching and uncertain. There are no true precedents to guide the task of carving a new state out of major advanced economy. Individual investors, companies and institutions across the UK and beyond will see their fortunes affected for good or ill by the adoption of new fiscal, financial and currency arrangements.

The Scottish corporate scene

The Scottish corporate scene

    Even pro-union campaigners accept that Scotland would be viable as an independent country. But many issues remain unresolved with less than four months to go until the vote. Here, FT Money looks at some of the most important questions that investors might have to contend with.


    Will they really do it?

    Opinion polls have consistently shown a clear lead for the pro-union side ahead of September’s referendum. The gap narrowed considerably over the winter but has in recent weeks appeared to widen again. The FT’s independence poll tracker puts support for a No vote at 48 per cent to 36 per cent for Yes, with 15 per cent undecided.

    Yet pro-union politicians say nothing can be taken for granted. Some fret that the Better Together campaign against independence has struggled to offer a compelling case for staying in the union. Yes Scotland, the campaign to leave the UK, says opinion polls fail to capture a gradual shift toward independence.

    David Bell, a professor of economics at the University of Stirling, says that “prediction markets” including the gambling industry are often a more accurate forecast of political events than opinion polls. A review of the odds offered by 23 bookmakers by Mr Bell this month put the probability of a No vote at around 70 per cent – far from a sure thing.


    How would markets and businesses react?

    Most business people are still betting on a No vote. But uncertainty created by the referendum is already making some outside investors more cautious about sealing deals in Scotland. Such caution is slowing activity in some sectors of the property market, industry participants say.

    In depth

    Future of the union

    A Saltire flag

    Scotland will decide in a referendum to be held on September 18 whether or not to end the 307-year-old union with England

    “There’s a lot of people who have just got to the point now [where they are saying . . .] maybe we should wait until after the referendum to do the deal,” says Walter Boettcher, director of research at global property services group Colliers International. “It hasn’t stopped things for us yet, though certainly we feel like we’re paddling through treacle a little bit.”

    John Boyle, director for research at Rettie, the Scottish property agency, says overall recovery in the commercial and residential property markets is unaffected, but there are some suggestions that the referendum is having an impact on sales of homes priced at over £750,000. “The top-end residential market is showing signs of now beginning to quieten, as it is more dependent on buyers from outside Scotland,” Mr Boyle says.

    Financial advisers have been fielding anxious enquiries. Ronnie Ludwig, a partner in the private wealth team of accounting firm Saffery Champness, says some clients worry about what independence would mean for Scotland’s use of the pound and membership of the European Union.

    “It’s causing uncertainty and in some cases even fear,” Mr Ludwig says. “A number of people are saying they don’t want to have any Scottish currency, because they don’t know what’s going to happen with that.”

    AudioTSB flotation, Scottish independence and fracking

    In this week’s show, Jonathan Eley and guests discuss the prospects of TSB, the impact of a Scottish independence vote for investors and business, and whether there is money to be made from fracking

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    Pro-independence campaigners insist such worries are unfounded. The Scottish government has set out a vision for independence in which Scotland will continue in a formal currency union with the rest of the UK and companies in sectors such as finance and energy will be subject to near-seamless cross-border regulation.

    But the UK government and the three big Westminster parties insist they will not accept a currency union and that there can be no negotiation on the details of any post-independence settlement before the referendum.

    Some companies say there will be plenty of time to respond in the event of a Yes vote. The Scottish National party has proposed March 26 2016 as Scotland’s independence day, leaving 18 months for preparations.

    But other businesses fret that customers might not be willing to wait for more clarity and have started making their own contingency plans. Edinburgh-based insurance group Standard Life, for example, has announced that it could move parts of its operations to England in the event of independence. The announcement was aimed at reassuring the more than 90 per cent of the insurance group’s customers who live elsewhere in the UK or around the world that their interests would not be hurt by the creation of a new state.

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    “What the individual wants to know is the fine print and the nature of these big constitutional matters is you don’t get to the fine print at this stage in these processes,” Gerry Grimstone, Standard Life chairman, told journalists at its annual shareholder meeting this month.

    A Yes victory in September would mean a “quantum leap in uncertainty” for investors, says Bill O’Neill, economist and head of the UK investment office at UBS Wealth Management.

    Sterling would weaken because of a higher risk premium as investors weighed the impact of independence and the prospect of a UK general election in 2015 dominated by the issue, Mr O’Neill says. Yields on gilts would rise, although the impact would be capped by HM Treasury’s guarantee in January that it will take responsibility for all of Britain’s £1.2tn debt, including Scotland’s “share”.

    Attention would also focus on companies with headquarters or substantial businesses in Scotland, having a particular impact on financial, energy and utility sector stock prices, Mr O’Neill says. “You’d certainly begin to see Scottish-linked shares suffer in the market,” he says.


    How long would the uncertainty last?

    It is impossible to know how quickly the Scottish government and the remainder of the UK might take to hammer out the terms of their separation. Both would have good reason to aim for a rapid and amicable result, but the process will be complex and highly political.

    The currency question will be central, with some observers assuming that the UK would quickly rethink its rejection of a currency pact that would preserve an integrated financial market and limit barriers to trade.

    Others, however, say UK reluctance means Scotland is likely to have to come up with a Plan B. Barclays analysts told foreign exchange clients this week that the most likely scenario would be the creation of a new currency, not least because this would give Scotland control over monetary policy.

    Merryn Somerset Webb

    Merryn Sommerset Webb

    Scotland’s fiscal independence is inevitable

    Negotiators in Edinburgh and London may not be granted the luxury of hammering out the details at their own pace. Some analysts say damaging capital flight from Scotland is a real possibility.

    Plans by the Czech and Slovak republics to maintain a currency union after their 1993 “velvet divorce” quickly foundered, in part because of the flight of deposits out of Slovakian bank accounts, Oxford Economics noted in a recent report on independence risk for Weir Group.

    And capital flight put Greece’s membership of the eurozone in doubt during the recent sovereign crisis; it was only stemmed by strong action by the European Central Bank.

    Mr Ludwig at Saffery Champness says he has already had clients asking for advice on how to move Scottish businesses and assets to England. “At the moment it’s a relatively small proportion, but if there is a Yes vote and there is no clarity – or if the clarity comes and they are not happy with what they are seeing – then I think the trickle will turn into a torrent,” he says.

    Any fund flows out of Scotland could be fuelled by expectations that a new Scots pound would fall against sterling. But while Barclays analysts say their calculations suggest a trade-weighted Scottish currency could fall by as much as 16 per cent in its first year, they found that under other assumptions it could actually rise. Their core estimate is for a decline of just 1.4 per cent. By contrast, they estimate that the UK pound would fall a trade-weighted 3 per cent in the first year after Scotland’s departure.

    If Scotland goes: Q&A


    After 307 years as part of Great Britain, Scotland will soon decide whether it is time to once again go it alone. On September 18 2014, the country will go to the polls. What will be the impact on finance, business and the economy if the Scots vote yes?

    Policy makers will have plenty of other issues to address, including arrangements for Scotland to take over responsibility for payment of state pensions. And private companies may have to grapple with EU rules requiring cross-border pensions to be fully funded. Resolving all such issues will take years.


    Would there be opportunities?

    Uncertainty and change would certainly create opportunities for canny investors. The process of separation and state-building would itself produce huge demand for people qualified to guide companies and bureaucrats through the legal, financial and organisational complexities.

    “Rejoice you herds of accountants, you flocks of consultants and lawyers, at the hours of work that are going to be required,” Rupert Soames, then chief executive of Scotland-based power system provider Aggreko, told a conference last year.

    Mr Boettcher at Colliers International says a “veritable professional services revolution” created by companies clamouring for help will fuel demand for commercial property, particularly in Edinburgh, where demand would also be boosted by the arrival of a host of new embassies and international representatives.


    Would Scotland prosper or stagnate?

    Both sides of the referendum debate agree that Scotland could prosper on its own, although pro-union campaigners say it will be much better off if it remains within the security of the UK. An independent state would also face considerable challenges, not least its dwindling oil reserves, relatively rapidly ageing population, a large fiscal deficit and – assuming it takes on the task of paying back its share of UK borrowings – a hefty stock of debt. Independence supporters say a sovereign Scottish government is more likely to set a policy course that will maximise prosperity. The SNP talks of a combination of lower corporate and aviation taxes and better welfare.

    Much will depend on the choices of future Scottish governments and on their ability to maintain a co-operative relationship with the rest of the UK, which would be by far Scotland’s most important international partner.

    If Scotland votes to leave, it will also be very much in the interests of the rest of the UK to make sure that separation works. Though 10 times larger than Scotland in terms of gross domestic product and population, the economy of the remainder would also suffer if divorce turned messy. The UK and Scottish governments have formally committed to “work together constructively” whatever the result of the referendum. People on both sides of the border will have to hold them to their word.

    Mure Dickie is the FT’s Scotland correspondent


    Cross-border commuters hesitate

    Uncertainty over the outcome of the Scottish independence referendum is hitting house sales on the Scottish side of the border, according to estate agents, writes Chris Tighe.

    “People won’t commit themselves to buying over the border until they know what will happen to the pound,” says Andrew Aitchison, director of a north Northumberland estate agency which sells property on both sides of the border. “There are still a lot of undecided factors which are making people nervous about moving to Scotland. It’s the unknowns, the fear factor.”

    House prices

    An illustration of houses

    Explore the latest data on house prices in England and Wales to see which areas of the country have seen the biggest rises

    Among those holding back are retired English people who had planned on moving to Scotland, say estate agents. Other potential purchasers of Scottish borders housing who are hesitating include people working near the border, who can live on either side and commute to work. Scotland’s offers of free university education for residents, free prescriptions and social care for the elderly have helped attract some of these commuters.

    Brian Reilly, manager of BPK estate agency in Dumfries, says this element of business previously accounted for about five per cent of BPK’s Dumfries office sales. But this market, at least for now, has gone.

    At Melrose & Porteous in Duns, Alan Young, property assistant, says one couple with two young children, who had sold their property, have decided to live in rented accommodation in the area pending the outcome of the referendum. They want to see the impact on schooling, he says. “They didn’t know whether to buy in Scotland or England.”

    “If anything, if it does go independent, it will help the English side,” says Mr Aitchison.

    Agents in northern English communities, such as Berwick-upon-Tweed and Carlisle, say enquiries and sales have picked up over the past year, thanks to increased general confidence, not to any Scotland-related factor. Proximity to the border has not had any adverse impact, they say.


    Home to investment trusts

    More than 40 investment trusts are legally incorporated in Scotland, according to research from Winterfloods, writes Jonathan Eley.

    This figure includes some that are not obviously Scottish, such as the Templeton Emerging Markets Trust and Finsbury Growth & Income Trust.

    Biggest Scottish trusts

    Name Assets £bn
    Alliance Trust 3.23
    Scottish Mortgage Trust 2.86
    Templeton Emerging Markets 1.94
    Murray International 1.47
    Edinburgh Investment Trust 1.42
    Aberforth Smaller Cos 1.13
     Source: Winterfloods,

    Simon Elliott, an analyst at Winterfloods, says any changes in taxation or regulation could have ramifications for the sector – although he points out that a future Scottish government might decide to make the regulatory regime more accommodating to ensure trusts remain in Scotland.

    Legally redomiciling a trust has been done before, but is quite a complex process. For example, moving Henderson Far East Income trust from England to Jersey in 2006 cost about £450,000.

    Sometimes, the process results in a special dividend as a company pays out its revenue reserves before winding itself up, adds Mr Elliott.

    Moving large investment teams and administrative staff is more complex and expensive.

    Alliance Trust, the largest trust with over £2bn in assets, said earlier this year that it had set up subsidiary companies in London as a contingency plan.

    BoE urges revival of business register

    Posted on 30 May 2014 by

    Bank of England

    Reviving the Comprehensive Business Register could help ease credit conditions for companies that are struggling to obtain the lending they need, according to the Bank of England.

    Unlike many other European countries, the UK does not have such a publicly accessible business register. Companies House did operate such a register, but it was discontinued in 1981.

    The BoE said a comprehensive register would make it easier to identify and match credit data on businesses, and could be particularly useful for the small and medium-sized enterprises which are not required to file accounts at Companies House.

      The financial crisis led to a severe tightening in credit conditions for all borrowers. But the impact on businesses was particularly severe, with lending to non-financial corporate borrowers now 14 per cent lower than its pre-crisis peak.

      Lending to UK businesses is highly concentrated, with the four biggest banks holding an SME banking market share of about 80 per cent.

      “Had the market been more diverse, other lenders may have been able to fill the void left by the large banks when they decreased their lending,” said the BoE’s discussion document, which aims to improve the diversity and robustness of market-based finance and credit in the UK.

      Across the EU, 16 of the 28 member states have, or are developing, a central credit register. Another six member states will be required to develop some form of central credit register to support the move towards a single supervisory mechanism in the euro area.

      The BoE said: “A number of independent reports have identified the lack of a central repository of credit information in the United Kingdom, particularly with respect to small and medium-sized enterprises and commercial real estate, as a significant shortcoming.”

      In the UK, credit data are shared through credit reference agencies. However, the BoE said there were a number of closed user groups operating within such agencies that meant some important providers of credit were unable to obtain credit information from agencies’ databases in a comprehensive way. For example, business current account data can only be accessed by providers of such accounts.

      There is already a Treasury initiative to mandate the sharing of credit data about SMEs between lenders through credit reference agencies.

      In countries where central credit registers exist, the discussion paper says the mandatory reporting requirements they employ mean they tend to obtain more complete information than the private-sector credit reference agencies.

      In the UK the completeness of credit reference agency databases is less of a problem but there are some lenders that have been less willing to share data comprehensively across all credit reference agencies.

      “Some degree of mandatory reporting may therefore be beneficial,” the BoE said.

      Bogus insurance claims up 18%

      Posted on 30 May 2014 by

      Car crash©Dreamstime

      Insurers detected record amounts of fraudulent claims in 2013, with a rise in dishonest motor claims driving the overall value up by 18 per cent year-on-year.

      Total fraudulent claims caught by the industry rose to a record high of £1.3bn last year, according to data published by the Association of British Insurers.

        A 34 per cent rise in the number of bogus car insurance claims – many of them “crash for cash” incidents – accounted for the majority of the increase. Motoring accounts for over three-fifths of fraudulent insurance claims.

        Property insurance fraud was down 24 per cent by value compared to 2012, and accounted for little more than one-tenth of total fraudulent claims by value.

        “These figures are encouraging because they reflect the growing success of the insurance industry in the war against fraud, rather than more fraud taking place,” said Simon Douglas, director of AA Insurance. “That is reflected by the fact that both car and home insurance premiums are falling.”

        The insurance industry is funding a dedicated police unit, launched in 2011, to clamp down on bogus claims. Another industry-funded body, the Insurance Fraud Bureau, has been investigating motor insurance scams since 2006.

        Crash for cash fraud adds an extra £50 a year to motor insurance cover – representing 13 per cent of the average premium – according to Kevin Pratt, insurance expert at

        Premium Bonds limit rises to £40,000

        Posted on 30 May 2014 by

        NS&I Premium Bonds

        The maximum amount that customers can invest in Premium Bonds will increase from £30,000 to £40,000 with effect from June 1, following changes announced in the Budget.

        A second monthly £1m jackpot will be added at the start of August. Bonds bought in June will have their first chance to win in the August draw.

          The last increase in the investment limit was in May 2003 when it increased from £20,000 to £30,000. Since then, the odds of winning have fallen as the “prize fund interest rate” has been reduced – most recently last July.

          National Savings & Investment said it expects the additional prize to be funded by new money coming in as a result of the increase in the subscription limit. If that were the case, the number of smaller prizes would be unaffected, as would the odds of winning a prize, which are currently around 26,000 to 1.

          Older issues are statistically less likely to win prizes, since 87 per cent of eligible bonds have been bought since 2000.

          Premium bonds remain popular – more than 21m people own a collective £45.7bn worth of them, including 600,000 people who have already the maximum £30,000 investment.

          Premium Bonds offer investors capital security because NS&I is backed by HM Treasury. They can be cashed in at any time, and can still be bought in person at a post office. Prizes are also tax free.

          Accounts irregularities at Espírito Santo

          Posted on 30 May 2014 by

          Portugal’s Espírito Santo Financial Group has reported “serious irregularities” in the accounts of its parent company in the latest of a series of damaging disclosures by one of the country’s leading financial and industrial conglomerates.

          ESFG, which owns 27.5 per cent of Banco Espírito Santo, Portugal’s second-largest listed lender by assets, said that an audit of Luxembourg-based Espírito Santo International, a non-listed holding company, had identified “omissions in the accounting of liabilities” and “overvaluations of assets”, among other irregularities.

            The latest revelation of financial troubles at the Espírito Santo conglomerate emerged as BES completes a €1bn rights issue.

            A jostling for position among potential successors to Ricardo Espírito Santo Salgado, chief executive of BES and chairman of ESFG, is also seen as a potential source of tension within the family group. Mr Salgado will turn 70 in June.

            Lisbon bankers said that the Bank of Portugal, which ordered the audit of ESI’s accounts, appeared to be acting discreetly to contain the financial difficulties affecting the Espírito Santo group and ensure that they did not pose a systemic risk to the Portuguese banking sector.

            Under the three-year international bailout that Portugal exited this month, banks were required to make costly efforts to deleverage debt and shore up their capital ratios.

            “The hard work has been done and the economy is beginning to recover,” said one banker, who asked not to be identified. “The last thing we need now is a crisis in the sector.”

            In a statement to Portugal’s stock-market authorities late on Thursday, ESFG said that irregularities “affecting the trustworthiness and completeness” of ESI’s accounts, included the “non-recognition of provisions for risks” and “inadequate accounting records”. It described ESI’s financial situation as “extremely negative”. ESI owns 49 per cent of ESFG.

            The irregularities were identified by KPMG in the second phase of the audit ordered by the central bank. After the first phase last year, ESFG was obliged to make a €700m provision because of its exposure to ESI.

            In its rights issue prospectus, BES included a warning over “reputational risks associated with the potential deterioration or perception of deterioration of the financial position of ESI or its subsidiaries”.

            It said that ESI’s difficulties “may affect BES’s reputation and the price of its shares”, partly because some BES and ESFG board members had also previously been members of the ESI board.

            In its latest regulatory filing, ESFG said that it would stop selling non-financial debt to BES’s retail customers. ESI had previously been selling its debt to an ESFG investment fund, causing Portugal’s stock-market regulator to intervene in November by limiting the amount that any Portuguese fund could invest in an affiliated company.

            ESFG said that its direct exposure to ESI at the end of 2013 was €1.3bn, partly guaranteed by collateral. Its indirect exposure, mainly resulting from debt instruments issued by ESI and its subsidiaries, amounted to €6bn, of which €3.8bn was held by retail investors, including €1.5bn in the hands of BES’s retail clients.

            By May 19, ESFG said, the amount of ESI debt held by BES’s retail customers had been reduced to €395m and the amount in the hands of institutions to €564m.

            ESFG added that the second phase of the audit had “not revealed any facts that would imply a reinforcement” of the €700m provision it made last year.

            Among additional measures, it said that it would ensure “total and final separation of the brands used by each branch of the Espírito Santo Group”. It would also refrain “from selling to retail clients, directly or indirectly, any debt issued by entities from the non-financial branch” of the group.

            ESFG said that it expected that a “reorganisation and deleverage plan prepared by ESI will rebalance its financial situation and allow the repayment of its debt”.

            Invesco steps into UK rental market

            Posted on 30 May 2014 by

            Global investment group Invesco is stepping into Britain’s private rented housing market in a £33m debut deal, in the latest sign the residential rental market is rapidly opening up to institutional investors.

            Invesco is to buy 118 rented homes in Hayes, west London, from construction company Willmott Dixon’s rental subsidiary, be:here. Invesco’s investment is made on behalf of a local council pension fund.

              Invesco recently put £106m into two multifamily housing projects in Germany, as part of its plan to expand into residential investment across Europe.

              John German, director of residential investments at Invesco Real Estate, said the private rented sector was an “increasingly important” arena for institutional investors.

              Alternative investors such as insurance companies and pension funds have been expanding rapidly into property lending over the past couple of years, replacing the banks, which are still cautious after getting their fingers burnt in the financial crisis.

              Research by De Montfort University published earlier this month found that nearly a quarter of new UK commercial property finance came from non-bank lenders in 2013.

              Phil Tily, UK and Ireland managing director for property data company Investment Property Databank, said institutional investors had seen increasing competition from foreign buyers for mainstream London property assets, and as a result were seeking out unconventional alternatives with growth potential.

              “The emergence of alternative sectors like private rent, student accommodation or seniors housing offers an exciting opportunity for UK institutional investors to deploy further capital into property,” he said.

              Andrew Telfer, chief executive of Willmott Dixon’s development division, said rented housing was “an essential part of creating a more sustainable housing market”.

              Be:here plans to build 5,000 rented homes in the coming years, particularly focusing on young professionals in parts of London with good public transport links.

              Another start-up private rent developer, Essential Living, is backed by M3 Capital Partners, which manages US pension fund cash. They entered the market in 2012 and have plans to build 2,000 homes at eight sites across the southeast.

              Essential managing director Scott Hammond said rented housing offered reliable returns. “Volatility in the economy tends to translate into volatile house prices, but rents are typically more stable,” he said.

              “The only way investors can currently get exposure to renting is by buying a buy-to-let property, which comes with all kinds of risks they don’t necessarily want. As the sector gains scale over the next decade we’ll see companies backed by institutions opening it up to wider investment by converting themselves into investment trusts or listed entities.”

              Legal battle for £8bn London development

              Posted on 30 May 2014 by

              London’s biggest development project, Earl’s Court, is facing a legal battle after local elections brought opponents of the scheme to power.

              The plans, drawn up by “starchitect” Sir Terry Farrell, and which involve demolishing two council estates, became Britain’s most expensive planning application when the scheme was launched in 2011.

                It was backed by the local Conservative-led Hammersmith & Fulham council, but the party unexpectedly lost control of the borough in last week’s polls.

                The incoming Labour party, which has become the biggest local authority grouping, campaigned against the £8bn scheme in its election manifesto, promising to renegotiate the deal and protect council estates.

                It has appointed Guy Vincent, former managing partner of City law firm Bircham Dyson Bell and a newly elected Labour councillor in Hammersmith, to review a swath of property development contracts signed by the Tories.

                Hammersmith & Fulham was seen as a flagship Conservative borough for policy making on property. The administration signed several large-scale deals, including two with property developer Stanhope to redevelop the old BBC Television Centre and a number of council estates.

                The redevelopment of the Riverside Studios arts complex was another scheme opposed by Labour.

                A housing project associated with the Earl’s Court scheme, Lillie Square, is backed by a company connected to Hong Kong
                brothers Thomas and Raymond Kwok, co-chairmen of one of the world’s largest real estate groups, Sun Hung Kai Properties.

                The brothers are on trial in Hong Kong for allegedly bribing a top government official, charges they deny. The developer, Capital & Counties, signed a conditional agreement to buy council-owned land – including the two council estates – in January, and has paid about £30m of the £105m total price agreed.

                Capco has already been given initial permission from the council and the mayor of London for its overall plan for the site, but detailed agreements have not yet been reached for all parts. Opponents of the scheme believe this could give the new council members a strong negotiating position.

                Local Labour MP Andy Slaughter called the plans “scandalous”, saying the council should try to get better value from the deal.

                Residents of the West Kensington and Gibbs Green estates have been campaigning to stop their homes from being demolished.

                Jonathan Rosenberg, a campaigner, said they were discussing how to challenge the developers’ contracts with the new administration. Keith Jenkins, a consultant at Devonshires Solicitors who is advising the campaigners free of charge, said there were a number of potential grounds for overturning the plans.

                ­Housing at Lillie Square went on sale this year and fetched up to £1,880 per square foot. Of 237 flats, 204 have already been sold before they have been built.

                Ian Hawksworth, chief executive of Capco, said the scheme was “well advanced” and would create 7,500 homes and 10,000 jobs.

                He added that it received planning consent in November 2013 and the company had “a binding land sale agreement with Hammersmith & Fulham council”.

                A spokesman for the council said: “Earl’s Court is one of a number of policy areas which are being looked at but no decisions have been made.”

                This article has been amended since original publication, in relation to the Kwok brothers.

                BoE and ECB in fresh push for loan bundles

                Posted on 30 May 2014 by

                Mario Draghi, president of the European Central Bank (ECB), right, looks at Mark Carney, outgoing governor of the Bank of Canada, while posing for a family photo during the Group of Seven (G-7) finance ministers and central bank governors meeting at Hartwell House in Aylesbury, U.K., on Friday, May 10, 2013. U.K. Chancellor of the Exchequer George Osborne said stability and confidence have returned to the global economy but Group of Seven finance ministers have "much more to do." Photographer: Simon Dawson/Bloomberg *** Local Caption *** Mario Draghi; Mark Carney©Bloomberg

                Mark Carney, left, is backing calls by Mario Draghi for a revival of safe securitisations

                Europe’s two most powerful central banks on Friday made a fresh push to revive the market for an asset class branded as “toxic sludge” during the height of the global financial crisis, in a move they hope will boost lending to the continent’s businesses and households.

                The reputation of securitisation, which involves slicing loans and then selling them on as bond-like instruments, was tarnished by the crash, when the practice helped spread turmoil in one part of the US mortgage market to the rest of the global financial system.

                  While default rates on European securitisations were far lower, the market has remained dormant in the bloc since 2008, with investors shunning the assets, which also carry with them high capital charges that need to be set aside in case of losses. But the Bank of England and the European Central Bank argue that a renewal of the market for the less complex products would bolster weak lending to the real economy and raise funding for banks.

                  On Friday the BoE and the ECB called for a range of measures aimed at broadening the appeal of safer types of securitisations by pushing for more disclosure and standardisation.

                  One of the aims is to develop “high-level principles” for a separate market for high-quality, simple and transparent transactions, which the central banks implied may also warrant less stringent capital charges than other securitisations. The securities created by these transactions could also secure more cash when used to access central bank liquidity.

                  The central banks called for credit registers to provide more detail on the loans included in transactions – a measure they believe would help kick-start the creation of securities backed by loans to the region’s credit-starved smaller businesses. Credit rating agencies were also called on to publish additional information alongside their ratings of specific transactions.

                  The central banks said their involvement would support the revitalisation of the market “in a more robust form”. Their involvement was needed “first, to lend credibility and to maximise the broader benefits of well-functioning securitisation markets. And second, to help prevent the re-emergence of markets over time that do not adhere to standards conducive to financial stability.”

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                  Mario Draghi, ECB president, has been one of the most vocal supporters of restarting the industry. He has signalled that the ECB would be willing to buy securities backed by loans to small businesses if there were a larger market for so-called “plain vanilla” instruments, which are much less opaque than the complex forms of securitisations that proliferated before the crash.

                  The backing of Mark Carney, who along with his role as BoE governor is also chair of the global Financial Stability Board, adds weight to Mr Draghi’s calls.

                  Peter Winning , an investment manager with Aberdeen Asset Management , said the fact that central banks wanted to revive the asset-backed security market was positive for sentiment.

                  But he said the “million dollar question” was still unanswered. “How will they distinguish between high-quality securitisation that they want to promote, and the more funky stuff that caused problems in the past, that they want to discourage?”

                  Mr Winning said it had taken the market about two years to come up with its own label for defining high-quality asset-backed securities, and this was still a work in progress.

                  “If the central banks are going back to square one it’s likely to be a long time before they come up with an agreed definition,” he said. “We’re not holding our breath.”

                  An analyst at one large UK bank said: “It will take some time to get the securitisation market functioning again, but it is encouraging that the central banks are moving in the right direction.”

                  The central banks have asked for comments to be sent by July 4.

                  Land Registry sees 6.7% house price rise

                  Posted on 30 May 2014 by

                  David Nutley, an estate agent, is seen placing a "For Sale" advert in the window of the estate agents office in this arranged photograph in Folkestone, U.K., on Tuesday, April 9, 2013. An index of U.K. house prices rose in March as transactions picked up and the outlook improved, the Royal Institution of Chartered Surveyors said. Photographer: Chris Ratcliffe/Bloomberg *** Local Caption *** David Nutley pfeatures©Bloomberg

                  House prices in England and Wales rose 6.7 per cent in April compared with the previous year, according to data published on Friday by the Land Registry.

                  The growth recorded by these official statistics is much lower than in other surveys, which have been recording double digit increases.

                    Some of the gap is because of methodological differences. For example, the Land Registry numbers exclude new build houses, while the Office for National Statistics’ index does not include properties bought for cash. The Nationwide and Halifax banks base their indices on their own mortgage books.

                    But all of the measures found the London market powering ahead of the rest of the country. The Land Registry estimates the year-on-year increase for the capital at 17 per cent, compared with 2.9 per cent for northeast England.

                    Matthew Pointon, property economist at Capital Economics, said outside London “the bigger picture is that nationally prices are making steady gains rather than accelerating”.

                    Friday’s data calculate the average house price in England and Wales as £172,069 – still less than the peak of £181,572 in November 2007.

                    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

                    The Land Registry figures include completed transactions lodged with the organisation and these details often come many months after mortgage approvals. The latest data are therefore unlikely to have been affected by the Mortgage Market Review, reforms that came into effect at the end of April and imposed tougher criteria on borrowers.

                    Howard Archer, chief UK economist at IHS Global Insight, said the figures suggest prices are “still rising markedly”, with the limited supply of new housing pushing them up.

                    While recent data from the British Bankers’ Association showed the number of mortgage approvals dropped for the third month in a row, the Land Registry figures show activity continuing to rise, with figures for February (the most recent month for which numbers are available) showing transactions up 38 per cent on the year.

                    Li set to win A$2.4bn Envestra bid

                    Posted on 30 May 2014 by

                    Asia's richest man Li Ka-shing waves during a press conference for Cheung Kong Holdings first-half earning results in Hong Kong on August 2 2012©AFP

                    Asia’s richest man is in poised to win the takeover battle for Envestra, after the Australian gas pipeline owner’s board backed a A$2.4bn (US$2.2bn) bid from Li Ka-shing’s
                    Cheung Kong Group (CKI).

                    Envestra on Friday recommended the A$1.32 a share offer to shareholders made by CKI, reversing a previous decision to back a rival bid from APA Group, which holds a 33 per cent stake in Envestra.

                      “CKI’s offer provides Envestra shareholders with an attractive, all-cash offer for their shares at a premium to historical trading prices,” said the Australian company.

                      Analysts said APA was unlikely to raise its offer for Envestra, and would instead choose to pocket a A$350m-A$400m profit by selling its shares to CKI.

                      Under the terms of CKI’s offer, APA has a third options to retain its 33 per cent stake in Envestra. APA on Friday said it was considering its options.

                      Mr Li, who is listed by Forbes as the world’s 15th richest person with a $31bn fortune, has been seeking to spin off assets in his home market of Hong Kong while acquiring assets overseas.

                      This week two companies connected to Mr Li bought a Canadian car park operator for $388m. Last week Mr Li was an unsuccessful bidder for the Port of Newcastle, the world’s largest coal port, when the New South Wales government sold the asset to China Merchants Group for A$1.75bn.

                      APA has been courting the gas pipeline company for almost a year, and in March Envestra’s board backed a A$2.2bn offer. The bid was thrown into disarray when CKI, which holds a 17 per cent stake in Envestra, opposed the offer and trumped the bid with an all-cash approach on May 9.

                      The CKI takeover of Envestra is conditional on securing the acceptance of shareholders holding 51 per cent of its stock, and approval by Australia’s foreign investment review board.

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                      Commonwealth Bank analysts said the CKI offer was a 6-8 per cent premium to APA’s bid and provided an enterprise value to regulated asset base multiple of almost 1.5. Analysts said the price was high compared with similar infrastructure deals in Australia, which were usually priced at lower regulated asset base multiples of 1.3 to 1.4.

                      Nathan Lead, analyst at the brokerage Morgans Financial, said comments made this week by Michael McCormack, APA’s chief executive, suggested that the company would likely accept the CKI bid.

                      H.L. Kam, CKI’s managing director, said the purchase of Envestra would complement its existing energy businesses in South Australia and Victoria.

                      “The acquisition would enable us to further share our expertise and to explore opportunities for synergy,” he said.

                      CKI is being advised by Citigroup while APA is being advised by Rothschild.

                      Not all of Mr Li’s Australian purchases have proved successful. Last year Cross City Motorway, the operator of Sydney cross city tunnel, was placed into receivership with debts of A$560m. It was owned by a consortium that included Mr Li’s CKI.