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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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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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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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

Gold miners end best month since 1998

Posted on 29 February 2016 by

Gold miners posted their best monthly performance in nearly 18 years after the yellow metal, a haven asset, has benefited from market turmoil.

The NYSE Arca gold miners index, which includes global mining companies like Barrick Gold, Goldcorp, Randgold Resources and 36 other companies, rose 38.7 per cent in February, its biggest monthly gain since September 1998.

    New York listed shares in Barrick Gold rallied 40.3 per cent for the month, Newmont Mining shares climbed 29.5 per cent, Goldcorp shares climbed 26.5 per cent, while shares in Kinross Gold jumped 78 per cent.

    The rally in gold miners comes as the precious metal’s 1.2 per cent gain on Monday took its monthly advance to 10.7 per cent for February — and on track for its best monthly performance since January 2012.

    “Gold has been seen as portable, liquid, convertible to any currency and so investors have flowed funds into ETF products and some mining indices,” said George Gero, senior vice-president with RBC Wealth Management.

    A string of lacklustre US economic data has delayed expectations for Federal Reserve rate increases this year. That has pressured the dollar against many rivals, in turn buoying investor sentiment for gold. Weakness in the dollar, the currency in which gold is denominated, makes it cheaper for foreign buyers.

    However, Robin Bhar, an analyst at Société Générale said: “The recent stabilisation in global financial markets has caused the market probability of a 25 basis-point Fed rate raise by December 2016 to recover partially to around 50 per cent, which the gold price has yet to react to.’’

    Higher metals prices helped the S&P 500 metals and mining index advance 23.8 per cent over the month, leaving the sector on course for its best month since April 1999.

    Elsewhere, shares in Signet Jewelers jumped 9.4 per cent to $108.40 on Monday after reporting better than expected fourth-quarter profits.

    The Bermuda-based retailer, which operates Kay Jewelers and Zales, reported adjusted earnings of $3.63 per share, ahead of analysts’ expectation for $3.59.

    Signet’s board also approved a new $750m share repurchase programme and announced an 18 per cent increase in its dividend.

    Shares in Valeant Pharmaceuticals fell 18.4 per cent to $65.78 as the drugmaker postponed its conference call to discuss fourth-quarter results and withdrew its previous financial guidance. Valeant also said chief executive Michael Pearson was returning to work after taking medical leave.

    Consol Energy shares jumped more than 10 per cent to $8.63 after announcing plans to sell a coal mine in southwestern Virgina and plans to suspend its dividend.

    The S&P 500 ended the month lower for the third month in a row. The benchmark index fell 0.8 per cent on Monday, bringing it to a narrow loss of 0.4 per cent over the month. The Dow Jones Industrial Average gained 0.3 per cent to 16,516.50 over the month while the Nasdaq Composite fell 1.2 per cent to 4,557.95.

    Gold and yen gain as sterling slumps

    Posted on 29 February 2016 by

    gold bars©Dreamstime

    Investors were rewarded during February for backing gold, long-dated Treasuries and, among currencies, the Japanese yen.

    After a turbulent start to the year for global equities, commodities and corporate bonds, asset prices attained a semblance of stability in mid-February, leaving benchmarks above their lows for 2016 as March beckons.

      Markets are focusing on crucial central bank meetings in the coming weeks and whether officials can soothe worries over slowing global activity.

      The yen gained nearly 7 per cent, staging a significant reversal after initially slumping when the Bank of Japan announced a negative interest rate policy surprise in late January. Not so appealing was the performance of Japanese equities, with the Topix index falling 9.4 per cent as its financial sector ended the month lower by a fifth.

      Gold’s price rise of 10.5 per cent for February illustrates 2016’s trend towards haven assets, with long-dated government bonds in the US and eurozone gaining further momentum.

      Among equities, the S&P 500 was on course to end February broadly flat. The benchmark experienced a volatile month, with the net number masking big allocation shifts by investors.

      Among the winners were materials, up 8.9 per cent, while industrials climbed 4.5 per cent and telecoms gained 3.7 per cent. The big losers were once again the financial sector, falling 1.9 per cent, with energy companies down 1.6 per cent.

      The broader European markets slipped further during February, with the Stoxx 600 index staring at a loss of about 3 per cent. Italian stocks led the weakness, down 5.5 per cent, with the biggest losses coming from financial and energy stocks.

      After sliding to a 12-year low of $27.10 a barrel, the international oil benchmark price for Brent crude was set to close February up more than 3 per cent. News of a potential Opec oil production freeze and supply disruptions in Iraq and Nigeria were helping to keep Brent near $36 on Monday.

      Sterling was hit hard by the recent confirmation of the EU referendum in June and the declaration of many prominent Conservative politicians to the Brexit campaign. The pound to the US dollar was down 2.3 per cent and below $1.40, a level the currency has rarely broken below in recent decades.

      Among the various asset classes, a notable loser during February was the Argentine peso, down over a tenth as Mauricio Macri’s offer sought to settle outstanding debt claims of $6.5bn to US holdouts.

      This article has been amended from an earlier version to reflect that the Argentine peso fell over 10 per cent during February and has not risen in value.

      Week in Review, February 27

      Posted on 26 February 2016 by

      Week in Review

      A round up of some of the week’s most significant corporate events and news stories.

      Oil price slide continues

        A pump jack operates in an oil field near Corpus Christi, Texas, U.S., on Thursday, Jan. 7, 2016. Crude oil slid Thursday to the lowest level since December 2003 as turbulence in China, the worlds biggest energy consumer, prompted concerns about the strength of demand. Photographer: Eddie Seal/Bloomberg©Bloomberg

        Oil market investors suffered a difficult start to the week when Ali al-Naimi, the Saudi oil minister, ruled out a deal by major producers to cut output, writes Kiran Stacey.

        A week earlier, the Saudis had joined Russia, Qatar and Venezuela in announcing a provisional output freeze — but only if other large producers agreed.

        Mr Naimi called this “the beginning of a process”, but poured cold water on the idea of going further, saying there was still too much mistrust between the world’s biggest producers.

        His comments sent the price of a barrel of Brent crude down $1.33 to $33.35, and the slide continued into the middle of the week. Prices recovered later, however, as data suggested low prices were helping stimulate demand for petrol.

        Meanwhile, the effects of the price slump continue to be seen in the annual accounts of oil companies worldwide.

        On Thursday, Spain’s Repsol became the second European oil major to announce it would cut its dividend after unveiling a €1.2bn net loss for 2015. The company proposed a 2015 payout of €0.30 a share, down from €0.50 a year earlier, following a similar move by Eni, the Italian oil major, last year.

        Oil chart 1

        Losses were even heavier at Chesapeake, the second-largest gas producer in the US, and one-time darling of the country’s shale industry. The company said on Wednesday that it had swung from a $1.3bn profit in 2014 to a $14.9bn net loss last year. It is now looking to cut its capital spending for this year by 69 per cent.

        In the UK, Premier Oil, one of the country’s largest independent oil and gas explorers, said it was considering starting talks with its lenders about renegotiating its banking terms. Like many in the UK North Sea, Premier’s debt pile has built steadily over the past few years.

        Things are also difficult for the companies that supply oil explorers, two of which — Petrofac and Wood Group — said this week they had seen a drop in earnings for 2015.

        Miners approach rock bottom

        Mobile World Congress in Barcelona, Spain, on Saturday, Feb. 20, 2016©Bloomberg

        For the mining industry, this week was one to forget, write FT reporters.

        Vale, the world’s largest iron ore producer, on Thursday reported a $12.1bn loss for 2015 — the biggest loss for any listed Brazilian company since records began in 1986, according to data from consultancy Economatica.

        A near-50 per cent depreciation in the Brazilian real against the dollar over the year pushed up the value of its largely dollar-denominated debt, while Vale was also forced to make impairments of $9.37bn to account for falling iron ore prices.

        BHP Billiton reported equally dismal results on Tuesday, cutting its interim dividend for the first time in 15 years as it swung to a $5.67bn net loss in the last six months of 2015.

        Both miners have also taken writedowns on Samarco, their joint venture in Brazil that triggered the country’s worst-ever environmental disaster when one of its dams burst in November last year.

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        On Wednesday, Brazilian police charged Samarco’s chief executive and six others with homicide following the dam’s collapse, which killed at least 17 people and left more than 700 homeless.

        Samarco said it considered the charges “misguided”, while Vale and BHP said they were awaiting the results of an external independent investigation to evaluate the causes of the incident.

        The charges came a day after Vale announced Samarco was the subject of another civil lawsuit in Espírito Santo, requiring its joint venture to pay R$2bn. Brazil’s government is already suing the company for R$20bn over the disaster.

        Mobile’s mass appeal

        More than 100,000 people attended Mobile World Congress in Barcelona to see the latest in virtual reality, artificial intelligence and connected devices from a vast array of telecoms and technology groups, writes Dan Thomas.

        This year, virtual reality devices were among the most prominent at the event given the arrival of headsets and cameras capable of taking immersive video from a number of Asian manufacturers.

        Samsung and LG even had competing virtual reality rollercoaster rides to show off their headsets, while Mark Zuckerberg took to the stage on the opening night to support Samsung’s Gear VR range that has a partnership with Facebook’s Oculus.

        Mr Zuckerberg later that week returned to the stage to talk more about his excitement about virtual reality, as well as mount a stout defence of the ban on Facebook’s Free Basics internet service in India.

        Other technology groups focused on connected devices and applications firmly aimed at the fast growing market for the internet of things. These ranged from radical solutions for how to link urban services such as public transport in smart cities to simple gadgets that let help people fish or walk their pets.

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        Smartphones are always one of the main draws at Mobile World Congress, although this year many manufacturers such as Samsung concentrated on improving ranges rather than unveiling any revolutionary changes to form or function.

        Mobile network groups also use the event to show their latest plans to introduce improved infrastructure capable to faster speeds and better services. There were many examples being talked about in particular of 5G — the next generation of mobile network — although all admitted that any real practical demonstration of a commercially available technology was still some years away.

        Global recall for Mars

        Packets of Mars Duo chocolate confectionary bars, manufactured by Mars Inc., sit displayed for sale in a newsagent's store in London, U.K., on Thursday, Oct. 17, 2013. The cost of chocolate is set to rise, propelled by raw sugar trading at a nine-month high and this year's 60 percent increase in cocoa butter combined with the arrival of Christmas demand. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

        Mars experienced the sour over the sweet this week when it made a sweeping, voluntary, recall of some of its most popular chocolate-bar brands after a customer found a piece of red plastic in a Snickers bar, writes Lindsay Whipp.

        The decision to recall Mars, Snickers, Milky Way, Celebrations and Mini Mix brands, which had been made at a Netherlands factory over a short period spanning the end of last year and the beginning of 2016, was made complicated owing to the global reach of distribution.

        The factory’s chocolate bars were sent to 57 countries, mainly in Europe, but as some were sold in duty-free shops, the potential for some of these treats to have made their way across the globe was high.

        Corporate person in the news

        Honeywell chief executive does not give up easily

        Honeywell Chairman and CEO Dave Cote

        Dave Cote hopes to create a behemoth in the aero and building sectors

        But the fourth-generation, Mars family-owned, company said that it believed that the occurrence of the plastic piece in a chocolate bar was an “isolated” one.

        Analysts said that Mars would probably suffer a short-term impact from loss of sales but because it had acted swiftly, any reputational damage would probably be temporary.

        However, the cost of the recall could run into the “tens of millions of dollars”, estimated one analyst.

        David Young, partner at British law firm Eversheds, said that the recall would be “among the largest undertaken given the number of products and countries affected”.

        “What needs to be remembered is that this is about risk management. It is not a story about pieces of plastic being in every one of these products.”

        Winners and losers of UK’s banking sector

        A man enters a Lloyds Bank branch in central London, Britain February 25, 2016. Lloyds Banking Group rewarded investors with a surprise 2 billion pound payout on Thursday, underlying its intent to be the biggest dividend payer among Britain's banks and its recovery after a state bailout. REUTERS/Paul Hackett©Reuters

        Bank dividend watchers had a busy week as the annual results of some of the UK’s biggest lenders shed more light on the gap between the sector’s winners and losers, writes Martin Arnold.

        Lloyds Banking Group emerged as the clear winner after its shares ended the week up 17 per cent, boosted by the £2bn dividend it announced that prompted investors to shrug off an 11 per cent drop in pre-tax profits.

        Another bank that won plaudits for its payout to shareholders was HSBC, which stuck to its policy of upping its dividend even though pre-tax profits of $18.9bn missed expectations. Its shares rose 4 per cent over the week.

        In contrast, Royal Bank Scotland had a rougher ride. The state-controlled lender postponed the date when it expects to be able restart dividend payments from the first quarter of 2017, blaming delays in spinning off its Williams & Glyn business.

        RBS shares ended the week down 8 per cent after it reported a net loss of £2bn, its eighth consecutive deficit that took its total losses since the financial crisis to more than £50bn.

        Standard Chartered also had a week to forget. Bill Winters, chief executive, said it “rips at our soul every time we look at these numbers” as he reported a $2.4bn net loss — its first since 1989 — and scrapped the final dividend. However, its shares finished the week up 4 per cent.

        Deutsche Börse plan for European champion

        Posted on 26 February 2016 by

        Carsten Kengeter, Deutsche Börse chief©Reuters

        Carsten Kengeter, Deutsche Börse chief

        Deutsche Börse’s attempt to link up with the London Stock Exchange Group is its latest — and possibly its last — chance at creating a European champion to counter an industry upended by technological change.

        The region’s two largest exchanges this week said they were working on an all-share “merger of equals” which, if successful, would correct failed attempts to combine in 2000 and 2004.

          Carsten Kengeter, Deutsche Börse’s chief executive, would take over the top role and Xavier Rolet would step back after seven years at the helm of the LSE. To assuage political sensitivity as the UK prepares to vote on whether to leave the European Union, they said a holding company would be based in London.

          On Friday the two sides stressed that a “leave” vote by the UK would jeopardise Europe’s hopes of building a unified capital market — but not the deal itself.

          “The financial infrastructure business in which the combined group operates is increasingly global… logically it should be most unlikely that “Brexit” would remove the merits of the merger,” said Peter Thorne, analyst at Edison Investment Research.

          A deal between the London and Frankfurt exchanges would be the fruition of Mr Rolet’s long-held vision that there would eventually be “three to five global exchange groups”, more comparable to investment banks.

          Both sides said a deal would be good for customers — who could save billions on the cost of trading derivatives — but also for the continent. Unlike previous merger attempts, the companies are now of a more comparable size and there is more common ground with their chief executives — both are European ex-bankers who have made London their base.

          The two heads envisage a stable institution that could provide “glue” to keep European markets united irrespective of the “Brexit” decision. “Carsten and Xavier believe wholeheartedly that this is a very good thing for the world. No matter the outcome this is good for Europe,” said a person involved in the talks.

          Combining Deutsche and LSE would create a company similar in size to US duo CME Group and Intercontinental Exchange and able to fight off rival bids.

          “It’s very clear that both companies [LSE and Deutsche] suffer a size difference versus other large companies,” said one person familiar with the discussions. If that disparity was not addressed, the person said, “reality will take over” — referring to the likelihood of a bid from the US.

          Deutsche Börse’s courtship of the LSE is a response to the 20-year revolution in technology and telecommunications.

          Cheaper, faster and more reliable equipment means traders around the world can access markets without needing to stand on an exchange floor. As fixed IT costs have soared in recent decades, most large exchanges have responded by demutualising and listing as public companies, and trying to increase trading volumes on their markets.

          More on the merger

          A visitor views a display in the main entrance of the London Stock Exchange Group Plc's (LSE) headquarters as the company holds its first ever charity trading day in London, U.K., on Monday, April. 02, 2012. U.K. stocks were little changed, as the benchmark FTSE 100 Index gained less than 0.1 percent to 5,770.94, after gaining as much as 0.6 percent and falling as much as 0.3 percent earlier. Photographer: Jason Alden/Bloomberg

          D Börse lines up LSE swoop

          News of the takeover echoes efforts in the past two decades to fashion a single mighty European entity

          Contentious timing

          The move comes at a critical junction for the City as it is beset with Brexit uncertainty

          Profile: Xavier Rolet

          The French banker has faced a range of challenges during his six years at the helm of LSE

          Profile: Carsten Kengeter

          The German banker has been quick to make his mark at Deutsche Börse, just eight months into the job

          Lex: do the deal

          This is no time for sentiment, get the merger done

          The industry consolidated rapidly, first into national institutions and then increasingly across borders into larger and larger entities. The LSE bought Borsa Italiana in 2007 while Deutsche Börse acquired Internatonional Securities Exchange of the US in 2008 for $2.9bn.

          But the shift in the industry has been double-edged. Competition from rivals and banks — enshrined in regulation — has continued to drive down market share and fees from trading in North America and European markets. Many exchanges have had to diversify into other revenue sources, like technology, clearing and settlement services, data and indices.

          Alex Harborne, senior risk analyst, capital markets, at consultancy Thomas Murray, likened the industry to airlines. “With fixed costs and volumes falling, they have to consolidate to maintain their economies of scale. We’ll need to see what the cost saving plans are [for the Deutsche Borse-LSE deal] before deciding whether it’s realistic.”

          A deal would unlikely disturb current business too much. The two sides rarely compete in the same products.

          “Measured against what many exchanges thought they might achieve in 2000, the current position is a little lacklustre — none of them fought and won the right to be called a pan-European stock exchange,” said Richard Balarkas, the former chief executive of brokerage Instinet Europe. “That was left to the new entrants. None has managed to drag foreign exchange, commodities or bonds on to democratised electronic exchange models.”

          Crucial details remain outstanding pending the formal offer — expected within weeks. How Deutsche Börse and LSE plan to merge their clearing houses, the subsidiaries that risk manage derivatives trades, will be critical. That issue is likely to be closely assessed by European regulators to determine whether it will create a regional monopoly and disadvantage users.

          Deutsche Börse’s last attempt at a major deal, in 2012 with NYSE Euronext, was blocked by European antitrust authorities, with the company at the time labelling the decision “a black day for Europe”. Avoiding another rejection may take all of Mr Rolet and Mr Kengeter’s diplomatic skills as they seek to satisfy shareholders, employees, customers and regulators.

          Recognise any of these demon landlords?

          Posted on 26 February 2016 by


          We rent because we can’t afford to buy — if there was a mantra for my generation, that would be it.

          There are now more than 2m buy-to-let landlords in the UK. With more of us priced off the property ladder, they’ve grown fat on our inability to buy. In my experience, the cost of renting only ever seems to go up, but the level of “customer service” from landlords and letting agents (if you can call it that) has never improved.

            Dealing with the fallout has become a rite of passage for millennials, with many fearing they face a lifetime of renting. According to PwC, almost 50 per cent of people between the ages of 21 and 39 will rent rather than own their home by the year 2025.

            The rising number of renters would not be such a problem if people didn’t feel so thoroughly taken advantage of by landlords and their agents.

            Chris Hamer, the former property ombudsman, tells me he saw a near twentyfold rise in complaints about rented property between 2007 and 2015. For all the profits that are being made in buy-to-let as house prices soar, landlord penny-pinching is endemic.

            Despite having to spend an ever-increasing chunk of our pay on renting, tenants find the quality of rented property remains stubbornly low. Speak to anyone in their 20s, and they will furnish you with horror stories about renting.

            The current system allows landlords to cause trouble in all sorts of ways — from withholding your deposit to rootling through your sock drawer while you’re out, to flat-out refusing to fix that broken shower. I wonder how many of the following you might recognise in my rogue’s gallery of dodgy landlords.

            The Snooper


            Is your landlady a warm but slightly intrusive pensioner prone to deadheading the flowers outside your front door?

            Or perhaps they keep essential items in the cupboard under your stairs and quickly pop in now and again to check they’re still there.

            These scenarios commonly occur when you are renting a former family home from a landlord who cannot “let go”. Be aware — your landlord does not have the right to enter the property without permission from the tenant 24 hours in advance unless they need to carry out emergency repair work.

            The Ghost


            Do you wade through a colony of rodents to get from your front door to your mouldy bathroom — only to find the mouldy ceiling has caved in because nobody has fixed the leak you reported nine weeks ago? Sounds like you have a ghost landlord — generally absent, maybe living abroad. You can badger the letting agent all you like, but they can never seem to get hold of the ghost landlord either. Either way, they aren’t going to be carrying out any repairs.

            Housing charity Shelter and polling group YouGov found that almost half of the people renting in England suffered problems with poor living conditions or disrepair within the past year. One-third complained of damp and mould, and one in five said they were cold because their home was so poorly insulated. A tenth complained of electrical hazards, cockroaches, rats or poor security.

            What should you do in this situation? Your landlord has to keep your home in a safe and habitable condition in accordance with your tenancy agreement. But to enforce that, you’re going to have to sue them. If your situation is really dire, the environmental health officer at your local council may be able to help — but councils are facing a squeeze on resources and will only deal with the worst, most dangerous, cases.

            The DIY Disaster Zone


            The shower has run dry. The boiler has blown up. There has never been a greater need for qualified professionals to roll up their sleeves. But why would your landlord do that when they are so good at DIY?

            Or at least — they think they are good at DIY, but in reality their protracted, noisy and inconvenient efforts to redress the problem just make it so much worse. Gaffer taping a bin bag to a ceiling in a misguided attempt to stop water seeping through, and varnishing the front door when the tenants were out (and leaving it open) are two examples that friends have experienced.

            If you are a tenant, other than legal threats, there is not much you can do. Again, you could complain to your local council, but unless the situation is really dire they are unlikely to be able to help.

            The Tightwad


            This type of landlord doesn’t really bother with you while you’re a tenant. It’s when you move out that he strikes, accusing you of unspeakable damage to the property and demanding the retention of the full deposit.

            One of my friends was billed £96 for a new fridge door handle, plus £250 for leaving furniture in the property (which the new tenants had asked for).

            Your main defence is making sure your cash is in a registered deposit protection scheme. In the case of a dispute, the scheme can mediate and decide what is fair — but be warned, it can often take months for this to happen. My friend eventually got his money back.

            The Commitment-phobe


            This kind of landlord decides for mysterious reasons that you can’t rent the property after all, even though the deposit has been handed over and everything verbally agreed.

            Much of the time, this is actually a problem with the letting agent and not the landlord. Letting agents used to be known for taking a “holding deposit” — prospective tenants would hand over cash to secure the property and have it taken off the market. If this happens and the deal falls through because of the landlord, they must give you 100 per cent of your money back straight away. If they don’t, you can complain to the property ombudsman which regulates letting agents.

            The Dumper


            Did you complain once too often? Were you being a nuisance, with all your outrageous demands for hot water? You might find yourself asked to leave midway through the tenancy.

            This is known as a “revenge eviction”, and it was made illegal in March 2015 as part of the Deregulation Act. But tenants can still be asked to leave if they have a break clause in their contract — which many do. Read your tenancy agreement very, very closely.

            The more you look at it, the more you can see that the whole system of renting is tipped in the landlord’s favour. If you’re a private tenant, there is no satisfactory informal redress system.


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            Millennials shun pensions — but why are they all property mad?

            There is one piece of ‘stuff’ all young people want — a house

            The property ombudsman will deal with complaints against letting or estate agents, but not specifically about buy-to-let landlords. There is a housing ombudsman, but they only deal with complaints about social housing associations.

            The only sure-fire way to deal with your shoddy landlord is to threaten legal action, which most people do not have the time or resources to do. So they move. And the next tenants who move in inherit the same problems.

            The properties we’re renting are often substandard and they don’t come cheap. The rent situation could get even worse from April, when George Osborne’s efforts to make buy-to-let a less lucrative deal for landlords kick in. Faced with having to pay more tax, I imagine most will simply ask their tenants to pay more rent.

  ; Twitter: @Aime_Williams

            Sterling suffers the Brexit blues

            Posted on 24 February 2016 by

            A one pound sterling coin sits in front of a British five pound banknote in this arranged photograph in London, U.K., on Tuesday, Feb. 9, 2016. The pound has been falling versus the dollar since the middle of 2015 and accelerated its slide this year, reaching an almost seven-year low of $1.4080 on Jan. 21. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

            The slumping pound, spurred by the risk of the UK leaving the European Union, has earned the currency a dubious accolade.

            Among major currencies, sterling’s loss of more than 5 per cent against the US dollar this year ranks as one of the worst market performances, with only Mexico and Argentina falling further.

            After dropping a full 2 per cent on Monday, the biggest one-day decline for the UK currency since October 2009, sterling has continued declining, hitting a low of $1.3965 on Wednesday — its lowest level since 2009. The risk of the UK leaving the EU has dragged sterling into rarely visited territory against the dollar. During the post Bretton-Woods era of freely floating currencies, the $1.40 level has effectively been a floor for the pound.

            How does this compare with past bouts of political turmoil?

            It is big. Last August — which was not a vintage time for global markets — sterling dropped 1.3 per cent in one day.

            In the thick of the May 2010 general election its biggest decline was
            1.4 per cent.

            In the run-up to the Scottish independence referendum in 2014 it fell 1.2 per cent, and that was an event considered troubling enough to have banks buying pizza and laying on blankets for currencies traders on the big night.

            So this is right up there in the list of post-crisis bad days for sterling.

            Is the fear new?

            Not really. The risk of the UK dropping out of the EU has been bugging the pound for weeks.

            The outline of an agreement between David Cameron, the UK prime minister, and his EU partners on the way forward did nothing to prop sterling up.

              How nervous is the market?

              Traders are biting into their nail beds. Six-month implied volatility on sterling, a measure of expected volatility in the currency that reflects how much it costs to hedge against large moves, is surging.

              Remember: that six-month period easily encompasses the date of the referendum, which is scheduled for June.

              The rate stands at a more than two-year high of 12 per cent. This means the market is bracing for a bigger shake-out than around the time of the most recent general election or the Scottish independence referendum.

              The prevailing guesstimate on how heavy the blow to sterling could be from a vote to leave is in the region of 15 to 20 per cent.

              Why sterling? Why not other UK markets?

              Stocks do not seem at all troubled for now. If anything, the opposite
              is true. Government bonds have stumbled but not on the same scale.

              Sterling is taking the strain. As UBS says: “The currency is the main barometer of uncertainty.”

              There are several reasons for this. A potential hit to UK growth could cause the Bank of England to hold interest rates at rock bottom for even longer than previously thought. If the blow is hard enough, some experts reckon it could even prompt a rate cut.

              In addition, the UK runs a reasonably hefty current account deficit. That is not usually a problem, but it does mean that the country needs to keep drawing in its usual inflows to hold the currency steady.

              A pause in trade in goods and services, and/or any hesitation in, for example, foreign direct investment while would-be investors think about what Brexit could mean, is bad for the currency.

              For bonds the picture is more mixed. Brexit is, on the one hand, a possible reason to avoid UK assets. But it also suggests a
              need to seek safety, and for many investors gilts fit the bill.

              Is it a bad thing?

              A swooning currency is often seen as a sign of stress. But it is a boon for exporters and a potential blessing for central bankers.

              A weaker pound could prop up droopy inflation, assuming upbeat overseas demand for UK goods and services.

              In that respect, Brexit fears are succeeding where many a heavy-hitting central banker has failed.

              Helicopter drops might not be far away

              Posted on 23 February 2016 by

              James Ferguson illustration

              The world economy is slowing, both structurally and cyclically. How might policy respond? With desperate improvisations, no doubt. Negative interest rates have already moved from the unthinkable to reality (see charts). The next step is likely to include fiscal expansion. Indeed, this is what the OECD, long an enthusiast for fiscal austerity, recommends in its Interim Economic Outlook. But that is unlikely to be the end. With fiscal expansion might go direct monetary support, including the most radical policy of all: the “helicopter drops” of money recommended by the late Milton Friedman.

              More recently, this is the policy foreseen by Ray Dalio, founder of Bridgewater, a hedge fund. The world economy is not just slowing, he argues, but “monetary policy 1” — lower interest rates — and “monetary policy 2” — quantitative easing — are largely exhausted. Thus, he says, the world will need a “monetary policy 3” directly targeted at encouraging spending. That we might need such a policy is also the recommendation of Adair Turner, former chairman of the Financial Services Authority, in his book Between Debt and the Devil

                Why might the world be driven to such expedients? The short answer is that the global economy is slowing durably. The OECD now forecasts growth of global output in 2016 “to be no higher than in 2015, itself the slowest pace in the past five years”. Behind this is a simple reality: the global savings glut — the tendency for desired savings to rise more than desired investment — is growing and so the “chronic demand deficiency syndrome” is worsening.

                This stage of demand weakness must be seen in its historical context. The long-term real interest rate on safe securities has been declining for at least two decades. It has been near zero since the financial crisis of 2007-09. Before then, an unsustainable western credit boom offset the weakness of demand. Afterwards, fiscal deficits, zero interest rates and expansions of central bank balance sheets stabilised demand in the west, while a credit expansion funded massive investment in China. Loose western monetary policies and loose Chinese credit policies also drove the post-crisis commodity boom, though China’s exceptional growth was the most important single factor.

                The end of these credit booms is an important cause of today’s weak demand. But demand is also weak relative to a slowing growth of supply. At the world level, growth of labour supply and labour productivity have fallen sharply since the middle of the last decade. Lower growth of potential output itself weakens demand, because it lowers investment, always a crucial driver of spending in a capitalist economy.

                It is this background — slowing growth of supply, rising imbalances between desired savings and investment, the end of unsustainable credit booms and, not least, a legacy of huge debt overhangs and weakened financial systems — that explains the current predicament. It explains, too, why economies that cannot generate adequate demand at home are compelled towards beggar-my-neighbour, export-led growth via weakening exchange rates. Japan and the eurozone are in that club. So, too, are the emerging economies with collapsed exchange rates. China is resisting, but for how long? A weaker renminbi seems almost inevitable, whatever the authorities say.

                Charts: Martin Wolf column data

                No simple solutions for the global economic imbalances of today exist, only palliatives. The current favourite flavour in monetary policy is negative interest rates. Mr Dalio argues that: “While negative interest rates will make cash a bit less attractive (but not much), it won’t drive . . . savers to buy the sort of assets that will finance spending.” I agree. I cannot imagine that businesses will rush to invest as a result. The same is true of conventional quantitative easing. The biggest effect of these policies is likely to be via exchange rates. In effect, other countries will be seeking export-led growth vis-à-vis over-borrowed US consumers. That is bound to blow up.

                One alternative then is fiscal policy. The OECD argues, persuasively, that co-ordinated expansion of public investment, combined with appropriate structural reforms, could expand output and even lower the ratio of public debt to gross domestic product. This is particularly plausible nowadays, because the major governments are able to borrow at zero or even negative real interest rates, long term. The austerity obsession, even when borrowing costs are so low, is lunatic (see chart).

                If the fiscal authorities are unwilling to behave so sensibly — and the signs, alas, are that they are not — central banks are the only players. They could be given the power to send money, ideally in electronic form, to every adult citizen. Would this add to demand? Absolutely. Under existing monetary arrangements, it would also generate a permanent rise in the reserves of commercial banks at the central bank. The easy way to contain any long-term monetary effects would be to raise reserve requirements. These could then become a desirable feature of our unstable banking systems.

                The main point is this. The economic forces that have brought the world economy to zero real interest rates and, increasingly, negative central bank rates are, if anything, now strengthening. This is what the world economy is showing. This is what monetary policy is indicating. Increasingly, this is what asset prices are demonstrating.

                Policymakers must prepare for a new “new normal” in which policy becomes more uncomfortable, more unconventional, or both. Can the world escape from the chronic demand weakness? Absolutely, yes. Will it? That demands greater boldness. When one has exhausted the just about possible, what remains, however improbable, must be the answer.


                What Brexit could mean for the City

                Posted on 23 February 2016 by

                ©Jonathan McHugh

                Jamie Dimon, the outspoken JPMorgan chief executive, could not be clearer about the upheaval he thinks the City of London would suffer outside the EU.

                Speaking to the Financial Times, Mr Dimon warns of a “massive dislocation” to the financial hub that would reverse decades of growth for international banks in London and scatter them across Europe and the rest of the world.

                He fears that UK-based banks would no longer be able to sell services throughout the bloc if Britain left the EU. His own bank would scale down its London operations and set up elsewhere: “If we can’t passport out of London, we’ll have to set up different operations in Europe.”

                This is far from the first time that the City has heard such prophesies. For veterans such as André Villeneuve, former chairman of the London International Financial Futures and Options Exchange, the debate about whether Brexit would spell riches or ruin brings back memories of late-1990s warnings that ultimately proved groundless. “They said the City would die because the UK wasn’t part of the euro,” Mr Villeneuve recalls. “They said Frankfurt would be king. But none of that happened.” Instead, the City prospered, weathering not just life outside the euro but also the global financial crisis.

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                The question ahead of the UK’s June 23 In/Out EU referendum is whether the warnings today are as unfounded as those a decade and a half ago. It is an issue that splits the City — and sometimes individual groups — into two, pitting brokers and hedge fund executives aghast at the wave of post-crisis EU regulation against investment bankers keen to commandeer European markets from a London base. Smaller groups and the people who have spent their lives working in them are much more likely to want to leave; bigger, international institutions overwhelmingly favour remaining in the bloc.

                “A significant amount of financial trade currently booked in London would leave if the UK left the EU,” says Alex Wilmot-Sitwell, head of the European arm of Bank of America Merrill Lynch. “It wouldn’t happen overnight but, steadily, it would fragment throughout the EU.”

                Backers of Brexit counter that the City would continue to thrive if it was unshackled from Brussels bureaucracy. “Outside of Europe, we wouldn’t suffer European regulation,” says Howard Shore, executive chairman of Shore Capital Group, a broker specialising in smaller companies. “We would be able to liberalise our economy, set our framework and rules to suit us.”


                UK’s EU referendum: full coverage and analysis

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                Since financial services represent up to a tenth of the UK’s gross domestic product, the outcome is of vital importance to the country as a whole. Rivals and competitors are hungry to take business from the City. Prominent among them are New York, long vying with London to be the world’s leading financial centre; Frankfurt and Dublin, with eyes for European business; and Singapore, Hong Kong and Tokyo, which have made big advances on western financial centres.

                Some financial professionals worry that Brexit would weaken not just the City but the EU financial sector as a whole. No other European financial centre comes close to London. The fear is that if banks and other financial groups moved services elsewhere in the continent it would lead to fragmentation rather than consolidation, ultimately strengthening the City’s Asian rivals. “Everyone loses if the UK leaves the EU,” says Gunter Dunkel, chief executive of German bank NordLB. “Frankfurt might win some business from London, but a more fragmented Europe would be a weaker Europe in the world.”

                It is impossible to calculate the precise impact of Brexit on the market access that the City prizes or on the regulations it loathes. No clarity exists over the terms of a UK exit from the EU.


                Brexit? In or Out

                What the City stands to lose and gain from Brexit

                Sectors such as foreign exchange trading have boomed during the EU years despite regulation worries. Read more


                But it is relatively straightforward to identify industry sector that have prospered at least in part because of access to the EU single market. The City has built on its traditional strength in foreign currency trading to become the biggest centre for trading the euro. Global investment banks have in tandem boosted their operations in London. Insurance, another longstanding speciality, has also thrived, with many insurers using London as their base for the EU as a whole. New markets have opened up: the UK manages €1tn of net assets in cross-border funds, or Ucits — double the figure of five or six years ago.

                Meanwhile, the contours of the debate reflect the changes in the financial sector itself. As the City has become more international, increasingly dominated by foreign investment banks and with more foreign employees, its focus has shifted from the UK economy to Europe and beyond. Today, 11 per cent of City employees — more than 38,000 people — come from EU countries other than the UK. US banks have built up £999.6bn of assets in the country, often to serve the single market.

                For virtually all of the big banks, insurers, asset managers and ancillary professions who together account for most of the City’s workers, the financial centre’s role as a bridge to continental European business is vital. A large majority in the City backs the view that Brexit would be a huge own goal; bankers, in particular, tend to be ardently pro-EU. Goldman Sachs has paid $500,000 to the campaign to stay in the bloc, with other big US banks following its lead.

                But there is another City tribe, smaller but more vocal, fighting passionately against EU membership. Much of the hedge fund industry and the brokers who service the UK share Mr Shore’s conviction that Brexit would make them, and the broader economy, better off. “Europe doesn’t have a great love for the City — the French and Germans have always been jealous of its success,” says Crispin Odey, founder of hedge fund Odey Asset Management. “Europe turns us into a colony and we are used to an empire. We are not used to obeying rules we haven’t set.”

                Many hedge funds are relatively small and are focused on money raised both domestically and from outside the EU, making easy access to the bloc of limited value. Top of their hate list is the Alternative Investment Fund Managers Directive, which establishes new regulations that many complain are costly, onerous and bureaucratic.

                City of London employment chart

                Brokers complain about Mifid 2, a sweeping new European regulation intended to make financial markets more transparent by “unbundling” the research and trading fees that brokers charge their asset management clients. Such grievances tap into a more general resentment of the EU’s limit on bonuses, which is so overwhelmingly unpopular in the City that it could trump more general worries about stability.

                “Brexit would be a risk factor”, says Michael Spencer, chief executive of interdealer broker Icap, who has not yet decided how to vote. “But it could also free us from the ridiculous bonus caps and other new legislation.” Others point out that the City would retain many benefits: the UK timezone, English law and education. “You can’t replicate the skillsets that you have in London,” says Neil Woodford, the star fund manager who has set up his own firm, Woodford Investment Management.

                EU supporters reply the UK would need to be governed by the bloc’s rules if it wanted to retain access to its market. They add, that at present Britain is able to police many such rules itself; David Cameron, prime minister, obtained a level of reassurance at last week’s summit that such autonomy would remain.


                Brexit? In or Out

                The economic consequences of Brexit

                In the first part of a special series, the Financial Times investigates the economic scenarios for the UK if voters on June 23 opt for “Brexit”. Read more


                “If we were out [of the EU],” adds Bill O’Neill, head of the UK investment office at UBS Wealth Management, “our ability to influence policy would be significantly reduced.” Lord Hill, the British member of the European Commission for financial regulation, is pushing for a “capital markets union” to make corporate fundraising easier, cheaper and without recourse to local banks — a big opportunity for the UK, Europe’s principal financial centre.

                Mr Villeneuve remembers that the UK’s decision not to participate in the euro in 1999 resulted in only one real setback: the loss of Bund futures contracts to Frankfurt.

                But, he argues, if Britain left the bloc, it would be impossible to limit damage in such a way. “We’d be a supplicant on the outside,” says Mr Villeneuve. While he has heard the warnings before, he argues that this time would be different.

                For all the changes the City has gone through in recent decades — deregulation, internationalisation, the opening up of new markets — Brexit could represent the biggest upheaval yet.

                The economic consequences of Brexit

                Posted on 22 February 2016 by

                ©Jonathan McHugh

                David Cameron has fired the starting gun for a June referendum on Britain’s membership of the EU — a vote with profound implications for the economies of the UK and continental Europe.

                In the first part of a special series, the Financial Times investigates the economic scenarios for the UK if voters on June 23 opt for “Brexit”, drawing a line under Britain’s four decades in the bloc.

                In a poll of more than 100 economists for the Financial Times at the start of 2016, more than three-quarters thought Brexit would adversely affect the UK’s medium-term economic prospects, nine times more than the 8 per cent who thought Britain’s economy would benefit.

                Many in the Leave campaign counter that economists tend to favour Britain remaining as an EU member because they are naturally in favour of deeper trading relationships with other countries.

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                The UK’s membership of the bloc has, in truth, both created and diverted trade. Most economists accept the evidence that trade creation has far exceeded trade diversion and brought increased competition, innovation and specialisation in its wake. But economics cannot predict what will happen if Britain leaves the EU.

                Economists are generally wary of transitions, fearing that heightened uncertainty over Britain’s relationships with other countries will damage confidence and investment, at least for a few years if Britain were to leave the EU.

                They are also more likely than many politicians to play down the importance of sovereignty, maintaining there will be a trade-off between sovereignty and the best decision-making authority.


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                The consequences of Brexit would vary depending on the terms of departure — which would have to be negotiated after a vote — as well as on the prevailing economic climate.

                Here, the FT looks at the case for three very different economic futures for a UK outside the EU: a Booming Britain, a Troubled Transition and a Disastrous Decision. The first envisages a vibrant economy unconstrained by Brussels red tape; the second foreshadows a period of turmoil and financial instability before the UK finds its way; the third portends an economy that suffers long-term damage.

                Booming Britain

                Chart: Brexit scenario

                The scenario

                Brexit is an orderly process that avoids short-term turmoil and brings greater prosperity to British people in the medium term.

                The assumptions

                For Britain to prosper more outside the EU than it did as a member, some of the following four conditions have to be met.

                To reduce the regulatory burden loathed by many businesses, the UK has to repeal or amend swaths of EU regulation. To restore control over its borders, which many supporters of Brexit crave, the UK must have an immigration policy that no longer discriminates in favour of EU citizens. To cut down on the cost of membership, it must save all or part of the £13bn a year in net budgetary transfers to the EU (offset by about £7bn the EU sends Britain).


                Britain’s net budgetary transfers to the EU

                Finally, to prevent disruption to the trade flows on which the British economy has come to depend, the country must negotiate agreements with the EU and with non-EU countries including the US, India, China, Japan and Australia. This would be a matter of urgency: in 2014 just over half Britain’s trade was with the EU, while sales to and from 60 other countries are governed by agreements struck with the bloc.

                What proponents say

                Patrick Minford of Cardiff Business School argues that: “In the long term, Brexit will herald a major growth-boosting period, as the UK breaks free of the over-mighty EU with its protectionist mindset and establishes free trade and intelligent regulation aimed at UK economic interests.

                In a similar vein, Leave EU, one of the two main groups campaigning for Brexit, talks of freeing Britain from the EU influence that “prevents the UK from taking full advantage of a surging global economy [and] capitalising on its unrivalled influence throughout the rest of the world”.

                Ruth Lea, adviser to Arbuthnot Securities, argues that being outside the EU’s single market need not be a serious concern. “Trade with World Trade Organisation rules is not disastrous,” Ms Lea says, referring to the rules that underpin global commerce. “A lot of EU trade is done on these rules.”

                The challenge

                Most economists question the underlying assumptions in this scenario.

                “The package of stopping free movement, but remaining in the single market and being free to liberalise the [EU’s] external tariff, seems to be pie in the sky”, says Professor Nick Crafts of Warwick University.

                The package of stopping free movement, but remaining in the single market and being free to liberalise the [EU’s] external tariff seems to be pie in the sky

                – Professor Nick Crafts of Warwick University

                If Britain were to remain a full part of the single market, it would have to accept EU regulations, including the free movement of people, without any influence in setting them. It would still have to pay for access to that market, as does Norway. It could not deregulate more than it can already today.

                If the country were to adopt a looser trading arrangement, it would have more control, but would struggle to negotiate the same access for goods and services.

                Raoul Ruparel of Open Europe, a think-tank influential in Number 10 Downing Street, questions the premise that Britain stands to make big gains from striking deals with countries outside the EU. “Lots of countries get free-trade agreements,” he says. “The question is whether they are quality or not.” For example, a recent Swiss free-trade agreement with China opens up all of the Swiss market to China immediately, while maintaining tariffs on exports of Swiss watches to China in perpetuity.

                Jonathan Portes of the National Institute of Economic and Social Research, a research organisation, adds that regulations could be a heavier burden for business outside the EU than in. At present, the rules that inflict most damage on the British economy are planning laws, a wholly domestic affair.

                FT verdict

                Today’s campaigns to leave the EU make for a striking contrast with the groups that opposed the common market in Britain’s 1975 referendum. In the 1970s the bloc’s opponents were fundamentally protectionist. In 2016, their rallying cry is freer trade outside the EU.

                But assertions that Britain will be better able to foster trade with third countries once it has left the EU are not yet very credible. Nor is it likely that the country can maintain the same access to the European single market while cutting down on regulation and budgetary transfers.

                Troubled transition

                Chart: Brexit scenario

                The scenario

                Leaving the EU is risky and will give the British economy a nasty jolt but, once a new relationship is forged, life will be neither better nor worse outside the EU.

                The assumptions

                Ultimately, the main assumption is that membership of the EU is not one of the most important issues in British economic prosperity. Though trade matters and ties with the EU would deteriorate, that would be offset by better relationships with other nations. The other main forces behind economic growth — investment, skills, competition, innovation and entrepreneurship — would remain intact.

                But breaking away from the bloc would inject deep uncertainty into the UK economy until new relationships with Brussels and non-EU countries were established, creating an unstable period of low investment with the risk of a run on the pound. Foreign investors could stop lending to Britain in the short term, choosing to wait and see at a time of upheaval.

                What proponents say

                A sizeable minority of economists maintain that Britain could continue outside of the EU with relatively little disruption. Proponents of this school of thought point to European economies, such as Norway and Switzerland, which have prospered despite never being members of the EU.

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                Such economists accept that if the UK were to maintain deep and wide trade relations with the EU after leaving the bloc, it would have to continue with many of the laws and regulations that are currently part of EU law.

                Bridget Rosewell, Senior Adviser at Volterra Partners, says: “I don’t think that Brexit makes any real underlying difference, and indeed the advantages and disadvantages of membership of the EU are finely balanced.”

                But some who argue that Brexit changes little in the long run still worry about the transition out of the EU — a concern they share with a wider number of economists. Ms Rosewell adds that “uncertainty and political disruption could make a difference”.

                There would be a bureaucratic crisis. The hope would be not to do too much damage

                – Jonathan Portes, NIESR

                Jonathan Portes, who was a former senior government official before joining NIESR, says that leaving “would be a bloody nightmare — especially for my former colleagues in the civil service. There would be a bureaucratic crisis. The hope would be not to do too much damage”.

                Of greater concern in financial markets is the possibility of a sudden outflow of money from the UK, which could make the country’s current account deficit of 5 per cent of national income difficult to finance.

                “Given the clear economic risks [in the event of a vote to leave the EU], markets would likely demand a considerably higher risk premium on the huge capital inflows required to finance that deficit,” says Neville Hill of Credit Suisse. “That would mean a sharp fall in sterling and the price of UK assets.”

                The challenge

                Many economists reject the idea that Brexit would create purely transitional problems. Instead, they argue that investment would fall in the wake of a bumpy exit from the EU, leading to persistently lower growth. Productivity could be affected too. Raoul Ruparel of Open Europe says that, “with less foreign direct investment, we would lose some potential and technical benefits”.

                I see no reason there should be an uncomfortable relationship with Brussels and an almighty run on the pound. But it would take maturity on both sides

                – Ruth Lea, a Brexit supporter

                Even temporary problems could take years to resolve. Charlie Bean, former deputy governor of the Bank of England, says that if Britain did decide to leave, “the continuing uncertainty surrounding the terms of access of UK companies to the EU market mean that this dampening effect on investment could be expected to last for several years”.

                Ruth Lea, a Brexit supporter, advises the government to minimise the risk of adverse market reaction to exit from the EU, a potential peril highlighted by the overwhelming majority of economists.

                “If we do vote for Brexit, this is the time we need to start making friendly overtures to the rest of the EU,” she says. “I see no reason there should be an uncomfortable relationship with Brussels and an almighty run on the pound. But it would take maturity on both sides.”

                FT verdict

                The contention that trade is only one element in the long-run performance of economies is well-founded. But such an argument can easily be exaggerated, since trade is clearly an important element of prosperity. A difficult transition out of the EU would jeopardise Britain’s living standards.

                Disastrous decision

                Chart: Brexit scenario

                The scenario

                Britain’s economy suffers after Brexit. The negotiations to leave the EU are fraught with difficulty and the trading relationship with Europe is worse than before, without offsetting benefits elsewhere. Britain’s economy once again begins to fall behind the country’s European partners.

                The assumptions

                After acrimonious negotiations, which drain confidence from the British economy, Britain secures a looser trading relationship with the EU. Free movement of people is curtailed, but the price is weaker access to the EU market for goods and particularly services. Britain finds it difficult to sign beneficial trade deals with other countries, receives less inward foreign direct investment, has fewer immigrants and does not improve the regulation of the economy.

                What proponents say

                Most supporters of the EU do not expect Britain to secure as favourable a trading relationship outside the EU as it enjoys at present if it insists on curbing free movement of people, one of the EU’s four principal freedoms, together with the free movement of goods, services and capital.


                of UK’s trade with Europe is in goods

                “A free-trade agreement is not the same as being in the single market,” says Rebecca Driver of Analytically Driven, a consultancy. “You end up having to comply with rules of origin regulations, which can be 200 pages long for a product and are particularly detrimental to small and medium-sized companies.”

                Ms Driver also worries that Brexit supporters exaggerate the ease of signing new trade deals with other countries. “Think how the US is going to prioritise trade deals,” she says. “UK or EU? With a limited number of negotiators, which market are they going to choose?”

                Raoul Ruparel of Open Europe expresses concern about the “strong negative effect” of a clampdown on immigration from the EU, which could reduce an already limited supply of skilled labour.

                Michael Saunders, an economist at Citigroup, anticipates a series of three big shocks: “Worse export performance due to inferior EU access for business and financial services; lower potential growth and lower consumer spending from reduced migration inflows; and weaker investment growth, reflecting the above factors plus extra uncertainty.” This would hit the government budget, requiring higher taxes or lower public spending amid higher costs of financing the deficit, he adds.

                The challenge

                Brexit supporters argue that the pro-EU camp always exaggerates the costs of opting out of EU initiatives, highlighting that many warned incorrectly of the consequences of not joining the euro in the late 1990s and early 2000s. Despite confident predictions that the City of London in particular would suffer because of the failure to enter the single currency, the financial centre has thrived.

                Think how the US is going to prioritise trade deals. UK or EU? With a limited number of negotiators, which market are they going to choose?

                – Rebecca Driver of Analytically Driven

                The Leave campaigns say that, because of its importance as a destination for EU products, Britain could relatively easily strike a free-trade deal with the bloc. Such agreements typically govern goods rather than service, but 90 per cent of trade with Europe is in goods.

                Moreover, they add, once it is outside the EU, the country would be more agile in striking new trade deals with third countries. While Michael Froman, President Barack Obama’s trade adviser, has warned Britain that the US is “not particularly in the market” for free-trade agreements with individual countries, the Vote Leave campaign maintains that trade relations with the US “will not change” if Britain left the EU.

                Ryan Bourne, head of policy at the Institute of Economic Affairs, adds that Britain will prosper outside the EU so long as “domestic policy remains sensible, economically liberal and mutually beneficial free trade is agreed”.

                The issue of whether a post-Brexit UK would have a heavier burden of regulation rather than being freed from the EU’s bureaucratic yoke remains deeply contentious. Brexit supporters acknowledge that the UK’s regulations are often wider ranging and more restrictive than the EU rules on which they are based — a habit known as gold plating. But Mr Bourne says that the real issue is the question “where sovereignty should reside”.

                FT verdict

                With clear and easily specified economic risks in the short and medium- term, Brexit does not easily pass any cost-benefit analysis. But supporters of the EU should be wary of making overconfident claims, since trade is only one driver of growth and prosperity.

                London digs down as house prices shoot up

                Posted on 22 February 2016 by

                A basement swimming pool in Dulwich, London©Alamy

                A basement swimming pool in Dulwich, London

                The number of planning applications to dig basements in London has doubled in two years, as soaring house prices make it a canny investment.

                Roman Abramovich, the Russian tycoon and owner of Chelsea football club, last week won planning permission to make space for a bigger swimming pool underneath his Kensington mansion — and plenty more are also extending underground.

                Figures compiled for the FT by Glenigan, a company that tracks planning applications, show there were 887 applications to build a basement on a residential property in London last year. This is up a quarter compared with 2014 and almost double the pre-crisis peak in 2007.

                Digging a basement can be unpopular — they can cause years of disruption to neighbours and sometimes do structural damage to other buildings.

                Ed Mead, director of estate agency Douglas and Gordon, said that “once property values get to £800 a square foot and upwards, it is worthwhile” to dig down, because the cost is exceeded by the value it adds to the property.

                “It’s probably the single most disturbing thing you can do [to your neighbour]. If you combine that with councils’ desire to listen to residents, you’ve a recipe for indignation.”

                He said that in his experience the space created could be worth the same per square foot as that above ground. “These days people are clever with it. It’s not just digging a hole in the ground and shoving a bed in it. The spaces that are created can often be better than space above ground.”

                If £800 per square foot is the point at which house prices create a financial incentive to excavate, it is possible to identify which areas may be next for a basement boom.

                In Chiswick, the average price of a home (not including flats) is £821 a square foot, while in Battersea it is £799 and in Kennington £789, according to LonRes, a research company that tracks property prices. For comparison, Hampstead is £1,260, Chelsea £2,050, Kensington £1,930 and Mayfair £2,860.

                Another incentive is the added costs of buying a house for more than £1m because of recent tax changes. The stamp duty land tax charged on a £1.5m house is now £94,000, meaning extending a house can make more financial sense than buying a bigger one.

                However, the disruption and the potential for structural damage means there is also some vociferous opposition to the trend. Oliver Froment, chairman of the Camden Residents Association Action Committee, said: “Having a basement built next to your house is very noisy, it’s like drilling a tunnel next to you. It’s a complex engineering process, constant piling, your house shakes.”

                He said some developers were buying houses, adding basements to bump up the price and selling them on. “That’s the sort of thing that’s wrong. It’s different if someone lives in a house and needs more space.”

                He said it could be difficult for homeowners to get compensation in the courts if their homes were damaged because developers sometimes used shell companies and offshore structures.

                Basements do not necessarily need planning permission and the law in this area is open to interpretation. Jessica Learmond-Criqui, a lawyer campaigning against basements in Hampstead, said the local council, Camden, did not require planning permission for one-storey basements that do not extend to more than half the garden. “There is a lot of resistance to their interpretation [of the rules],” she said.

                Tim Coleridge, Kensington and Chelsea’s cabinet member for planning, said that, from May, all basements in the borough would require planning permission. “Many people have been building basements without planning consent.”

                The borough was the first to tighten rules on basements two years ago and other areas are following suit. Last month, Islington adopted stricter rules. Camden said: “We are extremely concerned about the many issues presented by basement developments and are currently reviewing our planning policies.”

                Historic studio hits back against neighbours’ plans


                Originally a Kensington phenomenon, basement dig-downs have spread across London to places such as Hampstead, where a famous recording studio says it faces closure.

                The front of Airstudios on Lyndhurst Road, London, is seen Wednesday, February 8, 2006. Air Studios, a recording facility started by Beatles producer George Martin in a converted London church, was sold by Chrysalis Group Plc and its partner for 3.25 million pounds ($5.67 million) to Strongroom Ltd. studios. Photographer: Eva-Lotta Jansson/Bloomberg News.©Bloomberg

                Air Studios, which occupies a listed 19th-century former church and is one of only two studios in London that can fit a whole orchestra, is trying to block its neighbour from digging a basement that would contain a swimming pool and cinema. Bands such as Coldplay and Muse have used the studio and scores for blockbuster films have been recorded there.

                The studio and its supporters, which include singer George Michael and Queen guitarist Brian May, claim the noise would disrupt recordings and mean the studio would have to close for two years.

                “It is pure greed, what else is it?” said chief executive and co-owner Paul Woolf. He said it was “too risky” to build a basement because of the area’s geology. “It’s not for me to defend my business, it should be for the neighbours to prove that this is risk-free to me. I was here first.”

                Thomas Croft, architects for the neighbours, Andrew and Elizabeth Jeffreys, said they wanted to find an “amicable and practical solution to ensure the building work can be carried out whilst the studio stays open”, and that Air Studios had refused to meet them.

                Camden Council is considering the planning application.