Financial

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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Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Property

Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Archive | November, 2016

Royal Bank of Scotland: conference season

Posted on 30 September 2014 by

The Royal Bank of Scotland chief executive gets up to speak at Merrill Lynch’s banking conference in London. By the time he finishes talking about the bank’s “strong and diversified franchise”, the share price is two-fifths below the previous close. He spends the rest of the day in frantic talks over the bank’s future. It is 2008. We all know what happened next to Fred Goodwin and RBS.

On Tuesday, the Royal Bank of Scotland chief executive got up to speak at Merrill Lynch’s banking conference in London. This time it was Ross McEwan, and the share price had already enjoyed a 4 per cent jump in early trading. He had soothing news: RBS’s bad bank was not as bad as expected and will release £0.5bn of impairment provisions in the third quarter; the Irish part of the business will also release provisions; there are fewer new bad loans than expected. If RBS can wind down the bad bank more quickly than expected, talk of dividends will get louder.

    But ignore the good news about bad loans, and the premature dividend talk, for a moment. RBS also said on Tuesday that revenues in corporate and institutional banking were weaker than expected. Although this is not a big surprise, it damages the investment case. The bank made a return on equity of 7 per cent in the first half, well below its long-term target of 12 per cent. Of RBS’s three divisions, corporate and institutional was the laggard with a 2.7 per cent ROE. It still accounts for a third of risk-weighted assets, so to hit the target RBS needs corporate and institutional to deliver 10 per cent ROE. What happens there matters.

    Mr Goodwin was a retail banker who spent much of his time as RBS chief executive building up the corporate and institutional side of the business. Mr McEwan, also a retail banker, will have to spend much of his time cutting it back and pushing the rest into shape. Only when that is done will he have truly good news to deliver to Merrill Lynch’s guests.

    Tweet the Lex team at @FTLex

    Forex markets face further regulations

    Posted on 30 September 2014 by

    Participants in foreign exchange markets have been warned they may face further regulatory change even after implementing a long-awaited series of recommendations aimed at removing the taint affecting the sector.

    A task force set up by the Financial Stability Board on Tuesday set forth 15 reforms aimed at overhauling the $5tn currency markets following allegations surrounding the crucial 4pm forex fixing.

      The report from the global umbrella group said it expected the industry to accept all of the ideas, which include tougher rules aimed at minimising conflicts of interest within banks and a well-flagged widening of the window of time during which the key forex benchmark is calculated.

      But the report cautioned that further change could still follow down the line – with Britain already consulting on including the 4pm fix in a list of benchmarks that are policed by regulators.

      “Investigations into alleged misconduct are ongoing across a range of markets, and it is possible that the authorities will ultimately conclude that regulatory change is needed to promote or ensure appropriate behaviours and/or to implement the recommendations of this report,” the report said.

      The FSB started to scrutinise the London-dominated global forex market in February after a sprawling investigation by regulators and prosecutors into benchmark-rigging allegations piled on pressure to reform a largely unregulated industry.

      Its proposals suggest that the key window during which the 4pm fix is calculated be extended from the current period of one minute to make it less prone to manipulation, with industry feedback pointing to a five-minute window.

      In depth

      Forex trading probes

      Foreign exchange trading probes

      After the manipulation of Libor is rigging foreign currency markets the next big scandal to hit some of the world’s biggest banks?

      Further reading

      However regulators shelved a previous suggestion that would have created a global “utility” to match fixing orders placed by market participants, saying it wanted to allow industry-led initiatives to move ahead.

      The FSB report said that banks need to implement tough procedures separating the work of handling fixing orders from other business, reducing the potential for manipulation to occur.

      “Firms should establish distinct and separate processes for managing fixing flows as part of their effort to ensure that customer and flow information is appropriately protected,” the FSB said.

      It noted that such changes were “not costless” and could reduce banks’ capacity to absorb the risk from transactions, but it insisted this did not overshadow the benefits of reform.

      Firms should establish distinct and separate processes for managing fixing flows as part of their effort to ensure that customer and flow information is appropriately protected

      – FSB

      The FSB also called for codes of conduct governing the sector to be much clearer about what information can be shared between market-makers.

      Marshall Bailey, President of the ACI, an industry group, said: “The formal adoption of an international set of standards for ethical conduct and behaviour across the global financial industry will provide clarity and guidance on what is expected of all market professionals, from day traders to senior executives.”

      James Kemp, Managing Director of the FX division of the Global Financial Markets Association, said: “There may well be challenges and costs in implementing the changes, but enhancing confidence in the market is crucial and the industry will adapt to embrace these recommendations.”

      ECB pushed to take ‘junk’ loan bundles

      Posted on 30 September 2014 by

      Mario Draghi at the IMF spring meetings©Bloomberg

      Mario Draghi

      Mario Draghi is to push the European Central Bank to buy bundles of Greek and Cypriot bank loans with “junk” ratings, in a move that is set to exacerbate tensions between Germany and the bank.

      Mr Draghi, ECB president, will this week unveil details of a plan to buy hundreds of billions of euros’ worth of private-sector assets – the central bank’s latest attempt to save the eurozone from economic stagnation.

        The ECB’s executive board will propose that existing requirements on the quality of assets accepted by the bank are relaxed to allow the eurozone’s monetary guardian to buy the safer slices of Greek and Cypriot asset backed securities, or ABS, say people familiar with the matter.

        Mr Draghi’s proposal is designed to make the programme of buying ABS, which are bundles of packaged loans, as inclusive as possible. If it is backed by the majority of members of the ECB’s governing council, the central bank would be able to buy instruments from banks of all 18 eurozone member states.

        However, the idea is likely to face staunch opposition in Germany, straining already tense relations between the ECB and officials in the eurozone’s largest economy.

        Bundesbank president Jens Weidmann, who also sits on the ECB’s policy making governing council, has already objected to the plan to buy ABS, which he says leaves the central bank’s balance sheet too exposed to risks.

        Wolfgang Schäuble, Germany’s finance minister, has also voiced his opposition, saying purchases would heighten concerns about potential conflicts of interest between the ECB’s role as monetary policy maker and bank supervisor.

        While the safer slices – or senior tranches – of Greek and Cypriot ABS only make up a tiny proportion of Europe’s securitisation market, it would free up billions in liquidity for banks in two of the eurozone’s weakest economies, and potentially boost lending to credit-starved smaller businesses in the currency area’s periphery.

        Relaxing the rules would also signal the central bank’s intent to rid the region of the threat posed by weak growth and low inflation, which at 0.3 per cent is now at a five-year low.

        In depth

        Greece debt crisis

        A Greek flag flutters atop the Acropolis in Athens on February 12, 2014. AFP PHOTO/ LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)

        Greece will emerge this year from an unprecedented six-year recession, according to projections by the European Union and International Monetary Fund. Yet without a pick-up in the pace of structural reform, the recovery could prove fragile

        Further reading

        A senior Greek banker says easing the requirements “would have a significant positive impact for the Greek banking system and the Greek economy”. The ECB’s efforts to ease monetary conditions in the periphery were being hampered by the rules on low credit ratings, the banker argues.

        As the assets created in Greece and Cyprus are potentially riskier than those from banks elsewhere in the eurozone, the ECB would compensate by purchasing smaller proportions of these securitisations, according to a Eurosystem official.

        At present, the ECB only accepts ABS as collateral in exchange for its cheap loans if they hold a minimum rating of at least triple B, the lowest investment-grade rating.

        The ratings on senior tranches are capped by the sovereign rating of the country where the bank is based. If those rules were to apply to the ECB’s buying plan, the central bank could not accept any securitisations of Greek or Cypriot issuers. Standard & Poor’s rates Greece and Cyprus as single B sovereigns – a sub-investment-grade rating. Fitch rates Greece as single B, and Cyprus as single B-minus. Moody’s rates Greece Caa1 and Cyprus as Caa3.

        An ECB official declined to comment on Tuesday, saying proposals made to the governing council were confidential.

        Meanwhile, the euro – which has fallen some 9 per cent against the dollar since the start of May – dipped below $1.26 on Tuesday for the first time since September 2012.

        Additional reporting by Delphine Strauss

        Hollande warns France of spending cuts

        Posted on 30 September 2014 by

        French president Francois Hollande delivers a speech during the French Ambassadors conference on August 28, 2014 at the Elysee Palace in Paris. Hollande on August 28 called on the United Nations to provide special support for authorities in Libya, which is sliding ever deeper into chaos as militias fuel an escalating war. AFP PHOTO / POOL / CHRISTOPHE ENACHRISTOPHE ENA/AFP/Getty Images©AFP

        President François Hollande has issued an unusually stark warning to France to expect painful reforms as Paris comes under mounting pressure from Berlin and Brussels to adopt robust measures to revive the flagging economy.

        Chancellor Angela Merkel has publicly praised Mr Hollande’s reform programme but privately German officials have told their French counterparts that Paris is doing too little to pursue structural reforms and Berlin will resist any French plea for leniency when Brussels issues its verdict on French economic plans next month.

          On the eve of the publication of his socialist government’s 2015 budget, set to include €21bn in public spending cuts, Mr Hollande said: “The savings are inevitably painful. We have to make savings. What we will do in 2015 will necessarily have consequences.”

          His remarks marked a distinct change of tone for a government that has insisted to date it was avoiding austerity. They followed a pre-budget announcement that social welfare spending will be cut by €9.5bn next year, including slashing the €900 one-off childbirth payment by two-thirds from the second child onward – a cherished element in France’s generous family benefits system. The move prompted howls of protest across the political spectrum.

          The protests underscored the acute difficulty facing Mr Hollande as he seeks to reconcile hostility to change at home with frustration among his European partners over France’s wayward public finances and slow embrace of market reforms.

          “I have never known Berlin more annoyed with France,” says Charles Grant, director of the Centre for European Reform, a think-tank. “Seen from Berlin, Hollande has wasted two years achieving virtually no structural reform and failing to rein in spending.”

          France government debt

          In a clear indication of the scale of the problem, official figures released on Tuesday showed France’s public debt had topped €2tn for the first time, reaching 95.1 per cent of gross domestic product. The government has already admitted that the budget deficit will only be reduced to 4.3 per cent of GDP next year, easily overshooting the already twice-delayed EU-designated target of 3 per cent.

          Mr Hollande wants the European Commission to concede another delay. He has a potential ally in Pierre Moscovici, the incoming economics commissioner, who was his finance minister until March. But Mr Moscovici, who faces a grilling in confirmation hearings at the European parliament on Thursday, has had his authority curbed by having to make joint assessments of national budgets with commission vice-president Valdis Dombrovskis, former Latvian prime minister.

          Berlin wants a tough commission review and will resist any French pressure for leniency. If a vote is required over potential sanctions among the 28 EU member states, Germany would back the commission. “We will side with the commission. We will not vote with France against the commission”, is the line.

          France budget deficit

          Paris will argue that it is reducing its structural deficit – the budget shortfall excluding short-term recessionary effects – and is enacting reforms to free up rigidities in the economy long sought by the EU, including cutting the tax burden on business, loosening labour regulation and ending monopolies in the service sector.

          Berlin acknowledges that the structural deficit is a key issue. But Wednesday’s budget is expected to show a slowdown in the pace of the reduction of the structural deficit compared with earlier promises of a 0.8 per cent reduction in 2015.

          Mr Hollande is also facing strong domestic opposition to his plans to break up professional monopolies. Before a pending law has even been published, pharmacists, notaries and other professionals went on strike on Tuesday in protest against measures expected, for example, to allow the sale of some non-prescription medications in supermarkets.

          Without firm action on these fronts, Mr Hollande can expect little sympathy for his calls for Germany and other surplus EU countries to do more to stimulate demand in Europe.

          Ulrich Grillo, the president of the VDI, the German industry association, said last week: “German is not responsible for the structural problems of the French economy – and is not obliged to solve these problems.”

          Mr Grant added that Berlin feared that Paris would simply take advantage of any German fiscal stimulus by easing up on reform. “Berlin worries more about France than Italy because Matteo Renzi has a mandate for reform. Also, France matters much more for the future of the euro than Italy,” he said.

          Kenya sees GDP grow 25% after revision

          Posted on 30 September 2014 by

          Buildings stand in the city skyline of Nairobi, Kenya,©Bloomberg

          Kenya has been newly classified a middle-income country after a statistical reassessment increased the size of its economy by 25 per cent.

          Anne Waiguru, planning minister, said on Tuesday that Kenya’s gross domestic product stands at $53.3bn, up from $42.6bn, making it the continent’s ninth biggest economy. GDP per capita stands at $1,246.

            The revision also shows that Kenya’s growth rate in 2013 was 5.7 per cent, well above a previous estimate of 4.7 per cent, which is the average for sub-Saharan Africa.

            Kenya is the latest African country to benefit from rebasing its economy. The exercise updates the base year used for calculating GDP and includes previously uncaptured growth in key sectors such as agriculture, manufacturing, telecommunications and real estate.

            Nigeria overtook South Africa to became the continent’s biggest economy earlier this year after a recalculation revealed its economy to be worth $509bn, 89 per cent larger than previously thought.

            According to Kenya’s revised figures, Gross National Income is $1,160 per capita, above the World Bank’s $1,036 per capita “middle income” threshold, which the new figures reveal was passed by Kenya in 2012.

            Aside from the potential psychological boost to Kenya’s investment attractiveness, the recalculation means east Africa’s hub economy may now be able to apply for significant commercial loans.

            However, it will still fall below the minimum requirement of $1,215 GNI per capita for access to World Bank concessional financing.

            “They don’t qualify for [World Bank lending at commercial rates], but the [World] Bank is looking for a new window for high-performing countries such as Kenya to be eligible and it has done a creditworthiness assessment,” said John Randa, senior economist for Kenya at the World Bank.

            Ms Waiguru said that while Kenya’s economy was worth more than previously thought, the statistical revision would not affect people’s pockets, and growth rates still fall far short of an original target to grow 10 per cent a year as part of Kenya’s “Vision 2030” development plan.

            “Kenyans will be just as poor or just as wealthy as they were a year ago,” she said. “Rebasing GDP neither means that Kenyans will be better off nor does it imply the existing social economic challenges have ceased to exist.”

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            World Bank officials worry that Kenya has not assessed poverty levels for years, and regularly caution about the potential negative impact of rising inequality on the country’s social fabric and economic growth.

            Kenya gdp chart

            “Let us remember that even as Kenya becomes a lower-middle income country, an estimated four in 10 Kenyans is living below the poverty,” said Diariétou Gaye, Kenya World Bank country director.

            The Kenyan government says the economy will grow by 5.3-5.5 per cent this year, down from its earlier prediction that 2014 growth rates would rise to 5.8 per cent. The government is running a large budget deficit and struggling to pay civil servant salaries. It is also coping with the impact of a downturn in tourism following a spate of terror attacks and advisories warning against travel to some parts of the beach-holiday destination.

            Rouble hits low on capital control fears

            Posted on 30 September 2014 by

            The rouble touched a fresh record low against the dollar on Tuesday after reports that Russia’s central bank was considering imposing capital controls to stem the outflow of money from the country.

            The currency fell by as much as 0.8 per cent to trade at Rbs39.65 against the dollar after Bloomberg said such measures were on the table, citing two, unnamed sources it said had “direct knowledge” of the discussions. Against a euro dollar basket, it briefly fell below the level that triggers central bank intervention.

              The Central Bank of Russia denied the report, saying it was not considering introducing any restrictions on cross-border capital movements. Its governor, Elvira Nabiullina, said last week that capital controls did not make sense, but cautioned that if outflows accelerated, the bank might be forced to shift its focus from fighting inflation to financial stability, and could employ “non-standard means”.

              Any fresh defence of the rouble would be an abrupt change of tack by the central bank, which had not intervened in currency markets for several months despite its rapid slide. Instead, it has widened the band in which it allows the rouble to fluctuate in a sign that it intends to meet a January deadline for allowing the currency to trade freely.

              However, there is growing official concern at the impact of the west’s package of sanctions against the country after its annexation of part of Ukraine and the continued political stand-off between the former Soviet republic and Moscow.

              Russia has seen an acceleration of capital outflows from the country since the US and Europe introduced sanctions against it for its actions in Ukraine. Ksenia Yudaeva, Bank of Russia first deputy governor, last week forecast this year’s capital outflows at $90bn-$100bn, but Alexei Vedev, deputy economy minister, estimated they could reach $120bn.

              Moreover, government officials have expressed concern at the extent of the rouble’s decline – and have also urged the central bank to step up measures it recently introduced to ease an acute shortage of dollar liquidity.

              Tom Levinson, strategist at Sberbank, said the overnight dollar-rouble swap facility had helped companies struggling to access dollar funding, but was still relatively costly and restrictive.

              The squeeze on dollar liquidity could be leading banks to curtail lending, another analyst said, noting a 30 per cent year on year drop in car sales. “There is probably a pretty severe credit crunch… It is clear that financial sanctions are having more of an impact than people thought,” he added.

              The rouble trimmed its losses in late afternoon trading but it remains some 6 per cent down against the dollar this month and has lost almost a fifth of its value against the greenback since the start of the year. Its slump is surpassed only by that of the Argentine peso, which collapsed after a 20 per cent devaluation in January.

              IMF warns of global imbalances risk

              Posted on 30 September 2014 by

              Debts owed by borrower to surplus countries have kept growing in the wake of the 2008-09 crisis and still threaten the global economy, the International Monetary Fund has warned.

                Even though total current account deficits have halved since 2006 – with the big US trade deficit narrowing in particular – they have not turned into surpluses for large borrower countries. The total debt pile has therefore continued to increase.

                The IMF’s warning in the analytical chapters of its latest World Economic Outlook shows that while the pattern of so-called “global imbalances” has changed, they remain a menace to economic stability.

                “Stock imbalances have not decreased – on the con­trary, they have widened – mainly because of con­tinued flow imbalances, coupled with low growth in several advanced economies,” says the IMF.

                “Some large debtor economies thus remain vulnerable to changes in market sentiment, highlighting continued possible systemic risks.”

                Net foreign assets and liabilities

                According to the IMF’s estimates, the net foreign liabilities of the US increased from 14 per cent of annual output in 2006 to 34 per cent in 2013. For Spain, they went up from 70 per cent of annual output to 103 per cent, while in Italy the increase was from 24 per cent to 36 per cent of output.

                That was offset by large increases in net foreign assets for Japan, up from 41 per cent to 62 per cent of gross domestic product, and Germany where the rise was from 27 per cent to 46 per cent of GDP.

                Countries with large foreign liabilities are vulnerable to financial market shocks which may make it harder to roll over their debts. However, the IMF said there is little chance of trouble for the US, with the dollar more dominant than ever in international finance.

                Outlook darkens on global economy, OECD says

                Rescue workers remove debris at a collapsed apartment after an airstrike in Snizhne, 100 kms east from the city of Donetsk, eastern Ukraine Tuesday, July 15, 2014. An airstrike demolished an apartment block in eastern Ukraine on Tuesday, killing at least nine civilians, rescue workers said. The attack adds to the steadily growing number of civilians killed over four months in a dogged pro-Russian insurgency. Government officials denied the Tuesday strike was carried out by Ukraine's air force. (AP Photo/Dmitry Lovetsky)

                Fears of disruption following a Scottish vote for independence and intensifying conflicts in the Middle East and Ukraine have damaged prospects for the world economy, the Organisation for Economic Co-operation and Development said on Monday.

                Continue reading

                “The status of the US dollar as a reserve currency seems, if anything, more secure now than in 2006,” the IMF wrote.

                Total debts continued to rise even though annual deficits are smaller, and the pattern that defined the early 2000s – a large deficit in the US and a large surplus in China – has changed. “With the shrinkage in large deficits, the systemic risks from flow imbalances surely decreased,” says the IMF.

                The US deficit has shrunk by more than half since 2006, from 5.8 per cent of output to 2.4 per cent in 2013. China’s surplus, while still large in absolute terms, is down from 8.3 per cent of output in 2006 to 1.9 per cent in 2013. It has almost halved in relation to global GDP.

                Top of the surplus list today are eurozone countries such as Germany, that earns 7.5 per cent of GDP more from abroad than it pays each year, and oil exporters including Saudi Arabia, Kuwait and Qatar.

                Current account balance

                Many economists warn that Germany’s surplus is a big problem for other countries in the struggling eurozone because it sucks up demand that might otherwise go to their own goods.

                The IMF said one encouraging sign is the decline in current account deficits, or what it calls “flow” imbalances, is likely to be permanent. That counters the worries of some analysts who fear trade deficits in countries such as the US and Spain have only fallen because their domestic economies are weak.

                Local authorities turn to capital markets

                Posted on 30 September 2014 by

                Public sector debt is piling ever higher, driven by the lure of low borrowing costs and strong investor demand.

                Borrowers ranging from supranational organisations like the World Bank to individual towns and states are issuing record amounts of debt.

                  In theory, the sudden rise in debt issued by public sector organisations in the wake of the financial crisis should fall back as the economy recovers. But so far, that has not happened.

                  Last year, supranationals such as the World Bank, European Stability Mechanism and others issued $267bn – a record level of debt. Local authorities are also borrowing more than ever – issuing $7.2bn in bonds so far this year compared with $3.7bn by the same point last year, according to figures from Dealogic, the data provider.

                  “Short term, things are not going to go back to normal,” says Elie Hériard Dubreuil, credit analyst at S&P.

                  “Longer term it will depend on whether the funding they provide is met by the private sector. But there is still a need for non-governments to increase their funding. Look at Latin America, for example. In recent months you have seen Argentina default and Venezuela come close to default. Both may be in need of future financing.”

                  Collectively, quasi-government borrowers make an unwieldy group. At one end of the scale are enormous organisations created by multiple governments in response to political or economic crisis.

                  At the other end are sub-government authorities with the ability to borrow on capital markets to fund local projects.

                  Between the two are government-sponsored banks such as Germany’s KfW and AFD in France, which fund programmes with specific economic or social functions. These agencies borrowed slightly less last year than in 2012, but still issued a sum of debt that exceeded borrowing in 2010.

                  All tend to boast similar credit ratings to the governments that back them, and offer a slight bump in yields to investors.

                  The Belgian sub-sovereign Flemish Community, for example, offers about 40 basis points more than the equivalent Belgian five-year bond, according to Rabobank.

                  “Traditionally you get at least a few basis points over sovereign debt yields,” says Matthew Cairns, strategist at Rabobank. However, he points out that the investor base for public debt has broadened from conservative central banks to global banks under the direction of new regulation. This, combined with the fall in governments, afforded the highest, triple-A credit rating, and the drop in debt issued by US agencies – such as Fannie Mae and Freddie Mac – is pushing up order books.

                  “The yield makes the sector attractive, but now there is more demand than paper available and yields are falling. We don’t know how far that can go,” says Mr Cairns.

                  Investor appetite for public sector debt has become intense, says George Richardson, head of capital markets at the World Bank Treasury, who believes it will be years before debt issuance returns to pre-crisis levels.

                  Conscious that borrowing costs are falling at the top end of the public sector debt market, smaller organisations keen to borrow money to fund local infrastructure projects are busy making their own plans to tap international markets.

                  In the UK, local authorities are hoping to kick start a market in municipal bonds to take advantage of low global borrowing rates by creating central agencies.

                  The UK’s Local Government Association has said that creating an agency able to issue debt on behalf of councils could save them more than £1bn in borrowing costs.

                  More than £4.5m has so far been raised to create the Local Capital Finance Company, and the organisers say they hope to raise the first bond by March or April 2015.

                  Bankers say the success of municipal bond agencies in Nordic countries, Switzerland, Italy and now France, bodes well.

                  In Sweden, Kommuninvest raises sums that standalone councils would not be able to do, something UK councils will be aware of. Launched in the late 1980s, by the end of last year Kommuninvest’s total lending had reached $28bn.

                  And in the US, the vast municipal bond market, which reached $3.7tn by the end of last year, is an established source of saving for households.

                  “Agencies in Sweden have been around for more than two decades and are sophisticated debt issuers,” says Mr Cairns. “A fragmented sector cannot reach a broad range of investors. But when these agencies are entwined then liquidity improves, and investment climbs.”

                  Irish house prices less affordable than UK

                  Posted on 30 September 2014 by

                  For sale signs©Bloomberg

                  House prices in Ireland are higher as a proportion of average incomes than in the UK, and well above their long-term average, a report on the sector warned on Tuesday.

                  Davys, a Dublin brokerage, said the dysfunctional dynamics of the Irish housing market meant that the ratio of house prices to income in Ireland was slightly above that of the UK, pushing the value of a property above historical Irish trends. Upward pressure on prices would continue as a supply shortage and a young population kept demand high.

                  The report is one of several studies of Irish housing market dynamics released this week. It is likely to increase the pressure on the government to act in the forthcoming budget and curb a mini-price boom as the market recovers from the worst price crash in its history. The average price of a house in Dublin has risen by up to 25 per cent in the past year, compared with a 5 per cent rise in the rest of the country.

                  Housing affordability

                  Davys’ report also says Dublin house prices are rising at a faster pace than house prices in London did at the same point in its recovery cycle. Dublin property values have increased 29 per cent from their trough in 2012 up to the first quarter of this year, compared with around 20 per cent in London between 2009 and 2011.

                  During the bubble years, the average house price in Ireland rose to nine times the average Irish income. It is now at five times, compared to a multiple of 4.9 in the UK.

                  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

                  Further reading

                  “This is not a healthy housing market by any stretch of the imagination,” said Conall Mac Coille, an economist at Davys and one of the authors of the report. He said the Irish market, and in particular Dublin, was “at a classic point in the recovery cycle” where a shortage of supply was putting upward pressure on house prices. “It feels like the UK with a 12-month lag,” he said.

                  Despite a recovery since 2012, the average Irish property value is still 41 per cent below the peak reached in September 2007. Davys say the average price of an Irish house rose 408 per cent between 1994 and 2007 – exceeding any other property boom including the Netherlands in the 1970s and the UK between 1996 and 2008.

                  Ireland also saw the worst peak-to-trough fall between 2007 and 2013, when an average house price fell 51 per cent. That is the same as the fall in Japanese property values since 1991, and ahead of the 31 per cent fall in Spain since its bubble burst in 2008.

                  Wonga profits halved as clampdown bites

                  Posted on 30 September 2014 by

                  Wonga reported its first ever year-on-year fall in profit after the UK’s biggest payday lender was forced to compensate thousands of customers for sending them debt collection letters from made-up law firms.

                  The lender revealed that pre-tax profit more than halved in 2013 to £39.7m, down from £84.5m in 2012.

                    The results were in stark contrast to the previous year’s, where pre-tax profits rose by more than a third, and the amount it lent grew by 68 per cent.

                    Wonga said its 2013 profit had been hit by an exceptional charge of £18.8m for “remediation costs” after the City regulator ordered it to compensate more than 45,000 customers who received fake legal letters.

                    Warning that the business would be “smaller and less profitable in the near term”, the company said that continued investment in its international business was another “key factor” in the profits slump.

                    The exceptional charge offset a jump in revenue that was driven by a 15 per cent increase in the number of loans Wonga made last year. It provided a total of 4.6m loans in 2013 – up from 4m a year earlier – and lent £1.3bn – up from £1.19bn.

                    “The fact that they are reporting a 15 per cent increase in customers for this toxic form of finance reflects that there are still millions of people for whom there is too much month at the end of their money,” said Stella Creasy, a Labour MP.

                    The latest setback for Wonga comes after a torrid six months, during which the lender has been hit with a string of high profile departures.

                    Its co-founder Errol Damelin stepped down from the board as chairman in June, after quitting as chief executive the previous November. In another blow, Niall Wass, his replacement, left the company only six months later.

                    Andy Haste, the former chief executive of insurance group RSA, took over as chairman of Wonga in July, tasked with cleaning up the lender’s tarnished reputation.

                    But stringent new rules governing short-term credit providers – some of which were implemented earlier this year – are only starting to take root, casting uncertainty over the long-term profitability of payday lenders.

                    “The days of payday lenders making unjustifiable profits out of the cost of living crisis faced by the most vulnerable in our society are numbered,” said William Bain, another Labour MP.

                    The Financial Conduct Authority, which started regulating consumer credit providers including payday lenders in April, has warned that the new regime could force more than a quarter of payday lenders out of business.

                    “Wonga’s taking a hit for malpractice, but we’re going to see new regulations that are going to reduce their profit margins going forward,” said James Daley, founder of Fairer Finance, a company ratings site. “We’ve already seen a number of payday lenders exit the market and I imagine we’ll see more leave over the next couple of years.”

                    Under the new rules, credit providers cannot roll over loans more than twice – a common practice where loans are extended and fees imposed if a customer cannot repay.

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                    The watchdog also limited the ability of payday lenders to enter customers’ bank accounts to reclaim missed payments, and proposed a cap from January next year so interest and fees do not exceed 0.8 per cent per day of the amount borrowed.

                    Payday loan companies will also have to start paying levies to the FCA by the end of 2015.

                    Although the new rules came into force earlier this year, lenders have had a grace period to adapt to the new regime, which ends on 1 October.