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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Economy

Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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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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Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Archive | November, 2016

HSBC nears $4bn sale of Brazilian arm

Posted on 31 July 2015 by

HSBC may now think twice before moving their operations to Asia©AP

HSBC may now think twice before moving their operations to Asia

HSBC is nearing a sale of its Brazilian subsidiary to local rival Bradesco for close to $4bn and hopes to announce the transaction with its results on Monday, said people familiar with the talks.

If the deal is agreed in time. it would allow HSBC to demonstrate early progress on some targets set in its June strategic update. At that time, it promised to shed 50,000 jobs, sell its Brazilian and Turkish units and shift resources to more promising Asian markets

    Two people familiar with the matter said Bradesco, the second-largest private sector bank in Brazil, was in exclusive talks with HSBC about buying its operations in the country for close to its book value of about $4bn. The talks with Bradesco come after an auction run by Goldman Sachs that attracted several bidders including Spain’s Santander.

    HSBC is also in exclusive talks to sell its Turkish operations to ING of the Netherlands for $750m-$1bn. However, one person close to the talks said they may not be completed in time to be announced on Monday.

    Together the disposals represent a further retrenchment in the global ambitions of a group that once branded itself “the world’s local bank” and still has 266,000 employees in 73 countries and territories. HSBC, Bradesco and ING declined to comment.

    Some investors are growing frustrated with HSBC after it failed to hit many of the targets set in a previous strategic plan, including those for cost efficiency and return on equity. There has been speculation that Douglas Flint will next year announce plans to step down as chairman and could be replaced by an outsider for the first time.

    The bank expanded into Brazil and Turkey with bold acquisitions during the late 1990s as part of a global expansion drive. But it failed to make a success in either country as it lacked the scale to compete and racked up losses in both markets.

    Last year, HSBC made a loss of $247m in Brazil, where it is the seventh-largest bank by assets with more than 800 branches.

    If Bradesco is successful, it would allow the bank to close the gap with its bigger local rival Itaú Unibanco. It would also be a blow for Santander, which saw the auction as an opportunity to gain the scale in Brazil that it has been struggling to achieve since buying Banco Banespa in 1998.

    Analysts expect HSBC to report a 1 per cent increase in interim pre-tax profits to $12.5bn on Monday. Operating costs are forecast to rise slightly in the first half to $18.5bn, while revenues are expected to rise slightly to $31.3bn.

    One investor said the sale of the Brazil and Turkey businesses were “not big enough to move the needle” for a group with $2.5tn of assets and predicted that the focus would be on the progress of cost-cutting and the performance of its investment bank.

    Shares in HSBC have fallen more than 5 per cent since its strategic update in June, underperforming most rivals and the main FTSE 100 market.

    At the time Stuart Gulliver, chief executive, promised a “pivot to Asia” strategy, shrinking poorly performing operations in Europe and the Americas while redeploying resources to more promising markets, in particular the Pearl River Delta industrialised region of southern China.

    The sale of its operations in Brazil and Turkey will reduce staff numbers by 25,000. The bank plans to cut a similar number of jobs elsewhere, partly by shutting 12 per cent of branches in its main markets and shifting more operations to a digital model.

    World gears up for a surge in US dollar

    Posted on 31 July 2015 by

    ©Bloomberg

    As a symbol of how the US punches above its weight, nothing beats the pre-eminence of its currency. The US may account for just a fifth of global gross domestic product, but dollar assets make up three times as great a proportion of global reserves. Most commodity trading uses the greenback as the medium of account.

    This influence is telling. A working paper from the Bank of International Settlements found almost $8tn of dollar credit issued to non US borrowers. More recently the IMF pointed out how past episodes of dollar strength have coincided with a rash of emerging market crises. Now that the greenback is surging again — the dollar index is up 20 per cent since last autumn — the implications are moving into focus.

      First, some perspective is in order. Although the dollar index rose from 80 in October to 100 in March, such price action is run-of-the-mill when examined over a longer period. Between 1981 and 1985, the same index soared from 90 to 160, before a co-ordinated international effort pushed it all the way back within three years.

      Dissecting the dollar is something of an art; a bet on its strength can reflect confidence in the US, or darkening clouds elsewhere and a rush to safe assets. The same IMF paper has shown that rising US rates are beneficial when they reflect optimism about growth, but not if driven by tighter money. On many occasions dollar strength has coincided with fears about growth; last autumn, for example, a spell of global deflation may have helped propel the dollar on its recent run. Of late, attention has focused more closely upon how well the US is doing.

      Indeed, it is striking how US monetary policy pays little direct attention to the dollar’s globe-trotting role. Peruse Federal Reserve statements, or recent comments by its chair Janet Yellen, and you will struggle to find much reference to the world beyond US borders. Ms Yellen is focused on the data, but the data in question is all domestic: unemployment, inflation and GDP. The global economy only matters insofar as it might impact upon the US. This week GDP revisions strengthened the chance of a rise in the rate some time before Christmas.

      One might expect the Fed to worry more about the strength of its currency, particularly given evidence it has hit the profits of US foreign subsidiaries. But the US is a fundamentally closed economy where domestic demand conditions outweigh those from overseas. Instead, if anyone is worried about the effect of a strong dollar, it is the IMF, which recently warned of “significant and abrupt rebalancing of international portfolios” should the Fed raise rates. A further reason for the dollar’s strength is confirmation of a lack of credible alternatives. Those Cassandras fretting about how monetary ease damages the dollar’s reserve currency status fail to appreciate how this is built not on its strength but its depth. Dollar assets are pervasive and easily sold.

      China’s efforts to prop up its stock market — including trading suspensions and printing renminbi to chase a market level — shows how far it has to go. Nor can the euro mount a challenge when the ECB appears politically hampered from dispensing cash in a crisis.

      In the words of an influential monetary thinker, “never reason from a price change”. What matters is not a currency’s price, but the forces driving it. At present, the dollar is strong because the US is too. Notwithstanding the IMF’s concern, Ms Yellen’s disregard for conditions outside of the US is unlikely to budge. Nor should it. The next rise in US rates will be the most telegraphed in the Fed’s history. There will be no excuse for a tantrum.

      Investors need holiday after testing July

      Posted on 31 July 2015 by

      BENIDORM, SPAIN - JULY 22: People sunbathe at Levante Beach on July 22, 2015 in Benidorm, Spain. Spain has set a new record for visitors, with 29.2 million visitors in June, 4.2% more than the same period in 2014. Spain is also expected to be the main destination of tourists seeking a value-for-money all-inclusive holiday after the Tunisia attack. (Photo by David Ramos/Getty Images)***BESTPIX***©Getty

      Holidaymakers flock to Levante Beach in Benidorm in Spain, which has reported a record number of tourist visits this year

      Investors could be forgiven for feeling they deserve a summer holiday. Over the past month financial markets have been rocked, first by negotiations over Greece’s bailout then as attention turned to global growth worries with the fall in China’s stock market and plummeting commodity prices.

      The big theme dominating markets is divergence, as economic cycles and monetary policy approaches move out of sync. While China slows, Europe is recovering; and while the US is expected to raise rates, Japan will keep them low for a while longer.

        “We’ve got for the first time a dispersion in central bank activity. Economies are doing different things right now,” says Tony Lanning, a portfolio manager at JPM Fusion.

        While a rate rise by the US Federal Reserve is widely anticipated for September, “in two other developed markets — Europe and Japan — the quantitative easing experiment is just beginning”, Mr Lanning says.

        In the past week investors have moved out of US and emerging market bond funds, particularly US high-yield funds, which are heavily exposed to energy companies under pressure due to the falling oil price. Investors pulled a net $4.5bn from EM funds in the week to July 30, according to data from EPFR, compared with $3.3bn a week earlier.

        At the same time European and global bond funds have seen inflows, according to the latest data from EPFR.

        It is the same story in equities: investors shifted out of US funds and into European, Japanese and global funds. As well as a decoupling of monetary policy, economies are at different points in the wider economic cycle. Europe has more room for earnings growth than the US, having been in recession for longer.

        And stock market performance reflects this. Despite the volatility, buying European stocks was one of the best bets this month: the Euro Stoxx 600 returned 3 per cent this month whereas the MSCI emerging markets index fell more than 8 per cent. The S&P 500 recorded more modest performance, up 1.5 per cent. The Nikkei was a laggard with growth of only 0.3 per cent.

        Commodities, however, plummeted: in July the price of oil fell 12.7 per cent; gold and industrial metals were hit too, losing about 7.5 per cent of their value.

        Chart: How assets performed in July

        Investors fear this is due to a slowdown in China and a reduction in its appetite for importing base materials, but emerging markets were hit in general, particularly commodity exporters such as Russia where the rouble fell 8.1 per cent in July.

        So will investors finally get to take a break and enjoy their summer holidays or is volatility here to stay?

        After that punishing month many funds are now looking to protect their positions rather than bet on the European recovery, says Alexander Altmann, global head of European equity trading strategy at Citi. A lot of managers “are trading their profit and loss and not their view”, he says, referring to managers’ caution due to losses from Greek bailout volatility.

        Volatility tends to be higher in August anyway: as traders and asset managers leave their desks volumes get thinner and so news tends to have a bigger impact, he says.

        Gregor MacIntosh, head of global and emerging market fixed income at Lombard Odier Investment Managers, points out that the effect of quantitative easing is to erode returns while at the same time the “will-they won’t-they” concern over when it comes to an end is creating volatility.

        And this year summer will be accompanied by a packed calendar of closely watched data releases as investors attempt to figure out whether or not the Fed will go ahead with an interest rate rise — for the first time since 2006 — as anticipated in September. Any surprises could rock the market.

        While most analysts think China’s stock market fall has little impact on the country’s wider economy the concern is that it signals slower growth as the authorities try to pump up share prices to ward off a slowdown. Similarly, lower prices for commodities may show that demand is falling faster than anticipated.

        About half of all US earnings calls since the beginning of June have mentioned the slowdown in China, according to data from Factset. Industrial companies that export to China have been hit particularly hard.

        “What we have seen in China is a global deflation trade,” says Manish Kabra, European equity strategist at Bank of America Merrill Lynch. Although he believes the European recovery trade is still alive, deflation would make it harder for governments and companies to pay down their debt, while lower demand from China would harm Europe’s exporters.

        The German Dax index was particularly hurt by news of falling commodity prices as investors worried that if mining companies and Chinese manufacturers reduced their capital expenditure, the German companies that produce the machinery used would be hit hard, while German car manufacturers have looked towards China for growth.

        Instead, domestically focused stocks are favoured by strategists. Many point to the banks, which Nick Nelson at UBS says have provided the bulk of profits growth in Europe as they return to profit after a long period of rebuilding their balance sheets. As well as having more room to rise than other stocks, a banking recovery should support the market more broadly as credit expands in the eurozone.

        This is all underpinned by accommodative monetary policy, which is supporting the market through a lower exchange rate and cheap credit, which should limit the possible downside for investors.

        As long as investors keep pumping money into Europe it should help suppress any volatility in the market, says Mr Altmann. “And I see no reason why they wouldn’t, given they continued to through the Greek debacle.”

        Businesses use art to shape their image

        Posted on 31 July 2015 by

        Deutsche Bank's reception hall in Winchester House, London, featuring works by Anish Kapoor and Damien Hirst©Handout

        Deutsche Bank’s reception hall in Winchester House, London, featuring works by Anish Kapoor and Damien Hirst

        Just beyond the turnstiles of Deutsche Bank’s London reception sits a large object resembling several huge dollops of creamy Plasticine. As the viewer comes close, it turns out to be a sculpture made entirely of dice.

        “Secretions” (1998) by British artist Tony Cragg, a trained scientist, addresses questions about the structure of the universe. But some might find the frisson of gambling it evokes entirely appropriate for the lobby of a global investment bank.

          The piece, which sits alongside a polished metal sphere by Anish Kapoor and one of Damien Hirst’s “spot” paintings, is part of a collection of about 60,000 works owned by Deutsche Bank.

          The institution is one of hundreds of companies, typically in financial services, that see art not just as a decorative necessity but also an opportunity to stimulate the thoughts of their employees, support artists through purchases of their work and, perhaps most importantly, to project their desired image to clients, staff and visitors.

          About 600 companies have collections, according to Global Corporate Collections, a book published last month by Deutsche Standards. Many of the biggest are focused on contemporary art.

          Banks’ art-related activities have expanded in recent years. Deutsche and UBS sponsor big international art fairs — Frieze and Art Basel respectively — which they use as an opportunity to gather their most important clients in one place. The draw for wealthy clients is that the banks can smooth access to the most sought-after gallerists, bypassing the need to “prove” their credentials as big art buyers.

          But shareholders do not expect their capital to be used to place bets on the art market — especially not at today’s prices. So in order to avoid accusations of speculating, corporate collectors typically shun auctions or the secondary market, instead going directly to artists or their dealers.

          UBS, which has about 35,000 works, decided 10 years ago to buy art exclusively from the primary market.

          “That means that whether we make a good acquisition or not, we’ve still supported the artist,” said Stephen McCoubrey, UBS regional curator for Europe and Asia.

          The important thing is that companies run a collection professionally. They manage it, show it, and have a proper database inventory and conduct activities directed at the public

          – Loa Haagen Pictet, International Association of Corporate Collections of Contemporary Art

          In fact, companies’ willingness to buy direct and hold on to artworks for many years can work in their favour on prices: gallerists trying to establish an artist’s career hate to see their work “flipped” for a quick profit. Mr McCoubrey, for instance, said he had bought work by artists in the heated Asian market at “far, far below auction prices”.

          Contemporary art has increasingly become the preferred medium of such collections, as businesses try to align themselves with cutting edge, innovative and creative work.

          Friedhelm Hütte, global head of Deutsche Bank Art, said contemporary art had become a much more important part of people’s lives. “We have more new museums and art magazines, art fairs, biennales and festivals. People have more interest in museums and a lot of artists are treated almost like pop stars.”

          Prices for this segment of the market have soared past those for other types of art in the past decade, their upward trajectory checked by the financial crisis but recovering since 2010. According to the Tefaf Art Market report by consultants Arts Economics, values of postwar and contemporary art rocketed 600 per cent in the decade to 2014.

          In the 19th or early 20th century, corporate collections might have reflected the aesthetic whims of a powerful founder or chief executive. But these days most companies put in place formal processes for selecting and buying work and curatorial teams to oversee it. There is also an onus on lending work for public display, running tours or using collections for education.

          Loa Haagen Pictet, who chairs the International Association of Corporate Collections of Contemporary Art, said: “The important thing is that companies run a collection professionally. They manage it, show it, and have a proper database inventory and conduct activities directed at the public.”

          Chart: Postwar and contemporary art sales

          Most corporate curators disavow selling works purely for profit. Nonetheless sales happen: Sotheby’s sold $75m of corporate art in 2014 — minus the buyer’s premium. There are several motives.

          Even in good times companies may decide to put works on the market to fund new acquisitions or because, after buying another company, they find themselves with a collection that does not suit their preferred public image. After buying US asset manager Scudder Investments in 2002, for instance, Deutsche sold off works from its collection, typified by Midwestern agricultural landscapes.

          Purchases of art largely ground to a halt in 2008 and 2009 but curators said this was because the financial slowdown halted banks’ plans for new corporate buildings, whose decorative needs remain the primary motive for a buying spree.

          Mr Hütte of Deutsche Bank Art said: “Stopping acquisitions was never a serious option. Of course there were times when we spent less or more. But it depends which projects are on the agenda — new buildings, exhibitions or other programmes.”

          Purchases have since recovered: UBS, for instance, started buying again in 2009 and its acquisitions are now back to 2007 levels.

          After decades of collecting contemporary art, some companies have accumulated highly sought-after works. Most will lend them out for public exhibitions when asked, usually without a fee. But the bigger collections will sometimes put on more ambitious temporary exhibitions of their own selected works: UBS has held such shows at MoMA in New York, London’s Tate Modern and Beijing’s National Art Museum of China.

          Companies promote the social responsibility of their art activities but corporate collecting also remains what it has always been: good for business. As Kai Kuklinski, chief executive of insurer Axa Art Group, wrote in his foreword to Global Corporate Collections: “Broadly speaking, the nature of the patronage afforded to art by both private and mercantile wealth hasn’t fundamentally changed since the height of the Medici age.”

          Businesses build up their troves

           

          Most big corporate art collections are held by financial services companies but some industrial businesses have built up sizeable troves of their own.

          Statoil, the Norwegian oil and gas producer, has 1,350 works bought since the early 1990s. These are not only displayed in its administrative offices: on its Grane oil platform, a monumental portrait of a woman by artist Anne-Karin Furunes stands beside the helicopter pad, fashioned from perforated aluminium to withstand the rigours of the North Sea.

          Others build public galleries for their work, such as Shiseido, the Japanese cosmetics company which owns 2,500 modern Japanese paintings, sculptures and installations. Its works are put on revolving display at the Shiseido Art House, built in 1978 and free to the public.

          For most companies, contemporary art is à la mode but some set narrower criteria: Ritter Sport, the German maker of square chocolates, has assembled more than 1,000 works in a blocky public gallery near its Waldenbuch headquarters. The theme? They are either square shaped or exploring the idea of the square.

          UK rents rise at fastest rate in 2 years

          Posted on 31 July 2015 by

          Magnolia buds sit on a tree opposite a row of coloured terraced houses in the Notting Hill district of Kensington and Chelsea in London, U.K., on Wednesday, April 1, 2015. Home prices in central London's wealthiest districts fell for a second quarter as buyers were deterred by higher taxes and uncertainty surrounding the U.K. general election on May 7. Photographer: Matthew Lloyd/Bloomberg©Bloomberg

          The cost of renting a home is rising at the fastest rate for more than two years as Britain’s chronic housebuilding shortage pushes living costs up.

          Private rents rose 2.5 per cent in the year to June, figures from the Office for National Statistics show — with rents in London up 3.8 per cent year on year.

            By contrast, rents in Wales grew at just 0.8 per cent, while rents in the north-east and north-west of England rose just 0.5 per cent.

            But even these small increases are ahead of the rate of inflation — the official consumer price index measure was zero during the same period.

            Rents are rising at a slower rate than property values, however: house prices across the UK rose 5.7 per cent in the year to May, separate figures from the ONS showed recently.

            Rents have been on an upward trajectory for more than four years. Since January 2011 — the start of the ONS’s data series — rents across Britain have increased 10.2 per cent, the figures show.

            A charity that works with people facing financial problems warned that the rising cost of rent was “a real concern”.

            Jane Tully, head of insight and engagement at the Money Advice Trust, which runs the National Debtline, said she fears that “rent arrears will continue to increase”.

            The National Debtline has seen the proportion of its clients who need help to deal with rent arrears double since the credit crunch, to nearly 13 per cent.

            “With interest rate rises possibly only a few months away, we expect to see additional pressure on private renters’ budgets as landlords pass on these extra costs to their tenants,” Ms Tully said. She urged renters to “review their household finances”.

            Steve Belton, founder of property investment adviser Platinum Property Partners, said that rents were being pushed up by “a shortage of suitable properties coupled with strong consumer demand”.

            In depth

            UK housing market

            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

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            Chancellor George Osborne’s recent crackdown on buy-to-let investors is likely to push renting costs up further as landlords seek to recoup the additional costs from their tenants, Mr Belton added.

            “This rise in rents isn’t likely to slow down any time soon,” he said.

            Tax relief on buy-to-let mortgage interest will be restricted to only cover the basic rate of income tax, Mr Osborne said in his Summer Budget. The relief for higher-rate taxpayers will be withdrawn gradually over a four-year period from 2017.

            Tax relief on the cost of maintaining a property’s furnishings will also be tightened, saving the Treasury £200m a year.

            At the time they were announced, Mr Osborne said the changes would create “a more level playing field” between landlords and homeowners.

            The ONS’s rental series is an experimental statistic — one that carries less weight than its collection of official data, which includes its house price index. Its methodology is still under evaluation and may change.

            Osborne ‘itching’ to start sale of RBS

            Posted on 31 July 2015 by

            A red London bus drives past an automated teller machine (ATM) outside a Royal Bank of Scotland Group Plc (RBS) bank branch in London, U.K., on Thursday, June 11, 2015. Chancellor of the Exchequer George Osborne said he'll start returning Royal Bank of Scotland Group Plc to private ownership in the coming months, even though it may cause a loss for U.K. taxpayers. Photographer: Simon Dawson/Bloomberg©Bloomberg

            Senior City of London financiers say George Osborne is “desperate” and “itching” to start the first sale of government shares in Royal Bank of Scotland.

            As they prepare to go on their holidays, there is even speculation the chancellor will pull the trigger next week, beginning the process of unloading the 80 per cent stake the government has held since bailing out the bank seven years ago.

              It would be a poignant moment in British banking history, unwinding the £45bn bailout of what was at the time the world’s largest bank by assets — the record for a taxpayer-funded rescue of a failing lender.

              However, there are significant political risks for Mr Osborne, who is wary of being branded the chancellor who crystallised a multibillion-pound loss for the taxpayer on Britain’s biggest privatisation.

              If the government does sell shares next week at a slight discount to RBS’s current share price of 340p, it would fall well short of the 502p per share its bailout cost.

              While advisers say the government is only expected to sell about £2bn-£3bn of its £32bn stake — most likely to institutional investors via an overnight accelerated bookbuilding process — it would still face some £14bn of losses on its overall stake.

              Politically, Mr Osborne has prepared the ground. In his Mansion House speech in June he said both the governor of the Bank of England and the financial advisory group Rothschild had told him that any delay in privatising RBS would be bad for the economy, the taxpayer and the bank itself.

              “Yes, we may get a lower price than Labour paid for it, but the longer we wait, the higher the price the economy will pay,” the chancellor said in his annual address to the City, in a reminder that RBS was saved by Gordon Brown, the former prime minister .

              Citing figures from Rothschild’s review, Mr Osborne said a sale at recent market prices would represent a net loss of about £7.2bn on the state’s shareholding, including many of the fees received by the government from RBS since its bailout.

              If all the government’s banking shares — including those dating back to the bailouts of Lloyds Banking Group, Northern Rock and Bradford & Bingley — were sold at recent market prices and all fees received from the banks were included it would add up to a £14bn profit for the taxpayer, according to Rothschild.

              The chancellor believes an impaired RBS has been a drag on economic recovery and has held back the lending needed to boost productivity. He admitted this year that one of his biggest regrets in the last parliament was not moving more quickly to restructure the bank.

              Since he said in June that he was ’responsible for getting the best deal now for the taxpayer’, RBS shares have dipped more than 4 per cent

              The Treasury does not comment on the timing of asset sales and said reports in the Times newspaper of a sale next week were speculation.

              There are reasons why Mr Osborne may yet decide to wait until September before starting to sell out of RBS. Since he said in June that he was “responsible for getting the best deal now for the taxpayer”, RBS shares have dipped more than 4 per cent. And doing a deal in August may be risky as market volumes can be lower with more investors away on holiday.

              The bank itself is also in the midst of a wrenching transformation, shedding many of its international operations and its investment bank to concentrate on being a more domestically focused retail and corporate lender. It has made seven consecutive years of losses and still faces the multibillion-pound costs of restructuring and fines for historic misconduct that are expected to weigh on its performance for at least another year.

              But on Thursday, RBS reported a return to the black with a net profit of £293m in the second quarter. It also published extra detail on its provisions for fines and litigation in a sign it is gearing up for a share sale.

              Bankers are confident there will be strong appetite from investors — including the likes of Artisan Partners, Schroders and BlackRock, which already hold stakes — to buy shares in the bank given its turnround potential.

              Ultimately, it is likely to be a snap decision whether to sell shares and one made by Mr Osborne, UK Financial Investments, the body responsible for the government’s banking stakes, and its advisers at Goldman Sachs.

              If they push the button, there is bound to be heavy scrutiny of Mr Osborne’s timing. But it will also mark an important milestone in RBS’s recovery from the crisis.

              Additional reporting by George Parker

              BoE admits it was subject of police probe

              Posted on 31 July 2015 by

              File photo dated 30/07/14 of the Bank of England as interest rates are expected to remain on hold today when the Bank of England delivers its latest policy decision, a day after Chancellor George Osborne's emergency summer Budget. PRESS ASSOCIATION Photo. Issue date: Thursday July 9, 2015. Rates have remained unchanged at 0.5% for more than six years and are not expected to rise until next year. The Bank's Monetary Policy Committee (MPC) is likely to weigh up developments such as accelerating wage growth and upward revisions to the UK's economic performance against fears over Greece and disappointing manufacturing figures. Howard Archer, chief UK and European economist at IHS Global Insight, said it was "once again certain to keep interest rates on hold at 0.5%". "Even if the Bank of England was close to an imminent interest rate hike (which we doubt it is), it would be highly unlikely to act the day after the budget," he said. See PA story ECONOMY Rates. Photo credit should read: Anthony Devlin/PA Wire©PA

              The Bank of England has been forced to admit that a police investigation in the 1990s suspected that monetary policy decisions were being leaked to a businessman with links to organised crime.

              A wife of a BoE official was suspected by police in the late 1990s of leaking information to her lover, a businessman who in turn was suspected of being the “front” for a north London organised crime family, it was alleged in a report by news website BuzzFeed on Thursday night.

                The report, which claimed MI5, the domestic intelligence service, was also involved in the investigation, identified the man only as The Suit and his alleged lover was not named.

                The BoE conceded on Friday that police had launched a probe at the time, contacting the central bank in 1998.

                “The Bank of England was approached regarding a potential issue by the police at the time,” it said. “The Bank followed up and nothing was found to substantiate the claims of a leak.”

                No one was fired or disciplined as a result of the investigation.

                The Metropolitan Police declined to comment on the allegations, pointing to ongoing legal matters in connection to some parts of the article.

                Lawyers for the businessman at the centre of the probe said their client denies ever laundering money or being a front for organised criminals; and denies receiving or acting on any inside information. He also denies any sexual relationship with the official’s wife, BuzzFeed added.

                Leaks of monetary policy would be illegal. Officials on the Monetary Policy Committee, which controls interest rate moves, must sign a “declaration of secrecy” and enter into strict periods of purdah between their committee deliberations and announcements of their decision. The BoE, as well as financial regulators, also monitor any suspicious market moves ahead of the publication of interest rate decisions.

                The explosive claims over leaks come at a particularly sensitive time for the BoE, which faces an unprecedented criminal probe by the Serious Fraud Office into whether any of the central bank’s officials knew of or participated in alleged rigging of money market auctions held at the onset of the financial crisis.

                MPs to scrutinise new MPC member over Brevan Howard earnings

                Gertjan Vlieghe of the BoE MPC

                A powerful parliamentary committee is set to scrutinise whether the business interests of the incoming member of the Bank of England’s Monetary Policy Committee may clash with his new role.

                Continue reading

                This investigation came swiftly after an embarrassing cameo role in the foreign-exchange rigging scandal. An internal probe by Lord Grabiner QC cleared BoE officials of wrongdoing but criticised an official, Martin Mallett — who was fired over unrelated matters — for not escalating concerns.

                The BoE is not the only central bank to come under scrutiny for potential leaks: the US Federal Reserve is also facing allegations of a leak in 2012. The European Central Bank official came under fire earlier this summer for making remarks over allegedly privileged information at an event hosted by Brevan Howard, the hedge fund. The ECB denies the information was privileged.

                A former Brevan economist, Gertjan Vlieghe, has just been appointed to the BoE’s MPC. The Treasury select committee said on Thursday it would scrutinise the decision that Mr Vleighe will still be able to retain his stake in Brevan, a macro fund whose trading strategy is based on anticipating shifts in economic and monetary policy.

                But the BoE said: “The Bank of England has a code of conduct in place that applies to all MPC members and this ensures that no conflicts of interest exist when members join the committee. This code is applied rigorously at all times.”

                US wage growth slowest since 1982

                Posted on 31 July 2015 by

                397612 04: Rows of the new Series 2001 one dollar bill notes are stacked November 21, 2001 at the Bureau of Engraving and Printing in Washington, DC. The new dollar bills contain the signatures of U.S. Treasury Secretary Paul O''Neill and U.S. Treasurer Rosario Marin. (Photo by Alex Wong/Getty Images)©Getty

                Expectations of a Federal Reserve rate rise in September took a knock on Friday when data showed quarterly US wage growth at its lowest level for more than three decades.

                Wages and salaries for US workers rose by the smallest amount for a quarter since 1982, potentially clouding hopes of policymakers that the recovery is set to shift into a higher gear.

                  The numbers from the Department of Labor, which showed a 0.2 per cent rise in employment costs versus the 0.6 per cent expected by Wall Street, comes as the debate about income inequality intensifies ahead of the presidential election next year.

                  The figures sent the dollar and US government bond yields down sharply and put a dampener on expectations for a Federal Reserve rate rise following the Federal Open Market Committee’s carefully crafted statement on Wednesday.

                  Instead of raising rates only when it had seen “further improvement” in jobs, the FOMC said on Wednesday it would do so when it had seen “some further improvement”.

                  Joshua Shapiro, chief US economist with MFR, characterised the data as “not lift-off friendly”.

                  “The dovish wing of the FOMC will look at this as another reason to be ultra cautious with the timing of lift-off,” he said. “It raises the bar in what kind of growth numbers that need to be seen between now and mid-September for the Fed to pull the trigger.”

                  US presidential candidates across the political spectrum have pointed to income inequality and middle-class wages as one of the most pressing issues of the forthcoming election.

                  Wage growth is also a key factor weighing on when the Federal Reserve will raise rates. While an acceleration in the rate of pay rises would suggest an earlier rise, a slowdown may push a rise back, although Fed chair Janet Yellen has signalled there will be a rise at some point this year.

                  The unexpected slowdown in wage growth comes despite signs the labour market began tightening earlier this year and high-profile wage increases from large employers such as Walmart, Target and McDonald’s.

                  Treasuries rallied on Friday morning in response to the labour market data, with buying focused on the shorter-dated portion of the yield curve, with the yield on the 3-year note sliding back below 1 per cent.

                  The yield on the 10-year Treasury, which moves inversely to its price, fell 5 basis points to 2.21 per cent, while that on the five-year note dropped 7 basis points to 1.55 per cent.

                  The dollar also took a hit, falling 0.27 per cent against the yen at Y123.79, having been on a high note immediately before the numbers came out.

                  Eric Green, a strategist with TD Securities, said the data would not be constructive for the Fed as it debates lifting interest rates for the first time in nearly a decade.

                  However, despite the “dismal” figures, he added the odds of a rate rise in September were still above 50 per cent.

                  “Labour market fundamentals are improving, job openings at record highs, and slack on a steady downtrend. This is precisely how the Fed will interpret this report, even if the numbers here are atrocious,” he said in a note.

                  The figure, the smallest gain since the labour department began publishing the series in the 1980s, followed a 0.7 per cent advance in the first quarter of 2015.

                  Gross domestic product climbed 2.3 per cent in the three months to June, according to figures released on Thursday, slightly below predictions for 2.5 per cent growth.

                  Lloyds Banking Group: horse play

                  Posted on 31 July 2015 by

                  Pedestrians pass a Lloyds Bank branch, a unit of Lloyds Banking Group Plc, in London, U.K., on Monday, July 27, 2015. Lloyds Chief Executive Officer Antonio Horta-Osorio is poised to present investors with what they've been waiting for: plans to increase the dividend. Photographer: Simon Dawson/Bloomberg©Bloomberg

                    The past still weighs heavily on Lloyds Banking Group, even as chief executive António Horta-Osório tries to set the UK lender on a more stable course. It reported a 32 per cent leap in its statutory first-half profit to £925m. But that was below expectations, sending its shares lower. So too was its resumed dividend, slowing its hopes of regaining its income stock pedigree. That is a shame for the UK government, which is, bizarrely, planning to launch a costly public share offer to sell the rest of its stake (rather than selling by cheaper institutional placings).

                    One painful legacy tethering Lloyds’ black horse to its past is mis-sold payment protection insurance. The bank set aside a higher-than-expected £1.4bn for PPI claims, lifting the total to date to £13.4bn, above the levels at other British banks. It also provided £435m for other conduct charges.

                    More is the pity. Underlying profit of £4.4bn recovered convincingly, helped by a small revenue increase, bad loan charges that fell by three-quarters and continued progress on cost control. Lloyds’ cost-to-income ratio of 48.3 per cent is close to the level that once made it a benchmark for its rivals.

                    But keeping the income line rising is becoming harder. While Lloyds posted a 5 per cent net increase in small business lending, it faces increased mortgage competition from recovering rivals and challenger banks. For now, higher profits lifted Lloyds’ common equity tier one ratio to 13.3 per cent even after the interim dividend. More of the dividend will go to private sector investors because the government’s stake has been cut to less than 15 per cent (from 41 at the bailout).

                    With Lloyds tantalising investors with special dividends or buybacks from surplus capital, and given the smooth selldown of the government’s stake, UK chancellor George Osborne’s public offer plan seems a costly folly. Anyone who believes that Mr Horta-Osório can untether his black horse can already buy the shares on the market.

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                    Eurozone remains on the edge of deflation

                    Posted on 31 July 2015 by

                    A visitor walks past the European Central Bank (ECB) logo, featuring a euro symbol, in Frankfurt, Germany, on Thursday, May, 20, 2010. Europe's debt crisis will depress the euro still further after it declined to the lowest level since 2006, according to UBS AG and BNP Paribas SA. Photographer: Hannelore Foerster/Bloomberg©Bloomberg

                    The eurozone remained on the edge of deflation in July after inflation across the bloc held steady at 0.2 per cent, according to a flash estimate from the EU’s statistical agency.

                    Data from Eurostat show that falling energy prices helped nullify the inflationary effects of the European Central Bank’s programme of quantitative easing launched this year.

                      Core inflation, which strips out volatile items such as energy, accelerated 0.2 percentage points to 1 per cent year-on-year as the lower euro pushed up the costs of some goods.

                      Falling energy prices, including the big drop in oil, weighed on inflation across the eurozone. Energy prices accelerated their fall, declining 5.6 per cent in July compared with a 5.1 per cent drop in June.

                      Elsewhere, inflation in services hit its highest level in a year at 1.2 per cent, with analysts at Barclays suggesting that “technical factors”, such as package holidays and airfare bookings, were behind some of this increase.

                      The overall estimate of 0.2 per cent was in line with expectations, although some analysts had pencilled in a return to very modest deflation this month.

                      Others were bullish that inflation would creep up. Tomas Holinka, economist at Moody’s Analytics, said: “Inflation should gather momentum in coming months as oil deflation eases and food price growth gains ground.”

                      Inflation has been sluggish even in fast growing economies such as Spain, which this week recorded growth of 1 per cent quarter on quarter. Consumer prices in the country dipped by 0.1 per cent year-on-year during July.

                      Unemployment remained stable at 11.1 per cent across the eurozone in June, according to Eurostat. Big falls in unemployment in Spain and Portugal were drowned out by worsening figures in Italy, Belgium and Austria.

                      Inflation should gather momentum in coming months as oil deflation eases and food price growth gains ground

                      – Tomas Holinka, economist at Moody’s Analytics

                      Italy’s unemployment climbed to 12.7 per cent in June from 12.5 per cent in May, delivering a blow to hopes that the nascent recovery in the eurozone’s third-largest economy could bring some relief to its labour market.

                      Meanwhile, youth joblessness in the country increased to 44.2 per cent, its highest level since 1977 and roughly twice the eurozone average.

                      The discouraging data could hurt the government of Matteo Renzi, which has been hoping that its aggressive economic reform agenda could start delivering a brighter economic outlook for most Italians. But, so far, only pockets of the Italian economy have benefited from the country’s tepid rebound.

                      Finland endured an even worse performance, with unemployment jumping from 8.6 per cent to 9.5 per cent.

                      Across the EU as a whole, unemployment remained at 9.6 per cent in June.