The Times - UK (2020-07-27)

the times | Monday July 27 2020 2GM 39

Business

Banks are under scrutiny over whether

they are turning down customers on

the basis that they have taken mortgage

payment holidays.

A rising number of individuals claim

that they have been rejected for new

loans after admitting that they have

taken a payment deferral because of the

coronavirus crisis.

When the deferrals were introduced

in late March, ministers wanted lenders

to grant them to any customers who

asked, without reprisals in terms of

future lending or credit scoring. Since

then, banks have pushed back, object-

ing to calls for the payment breaks to be

hedge fund strategy was overextended,

but a number of strategies. And they are

all relying on the central bank put.”

This herding of positions had made

the markets “very fragile”, he said.

“Everyone is either a buyer or a seller at

the same time. So there is less of a

market. A lot of strategies make a lot of

money 90 per cent of the time, but

infrequently they blow up.

“It’s like central banks have told them

they will never have bad weather, just a

couple of days of rain. But those days

turn out to be a hurricane because

everyone is positioned the same way.

Then the central bank has to act even

more strongly.” According to the Bank

for International Settlements, as much

as $1.5 trillion is sitting that way in these

“systematic” funds. The problem with

any reform that addresses this is that,

like reducing leverage, it will increase

government borrowing costs by raising

investor risk. Right now, governments

need low borrowing costs.

According to the IMF, government

borrowing has risen by more than

$11 trillion globally during the pan-

demic, adding 19 per cent of global GDP

to total public debt. Central banks are

keeping borrowing costs low by soaking

up the supply of bonds. The BIS says

that the five big central banks will

expand their balance sheets by 15 per

cent to 23 per cent of GDP this year.

The vast supply is straining the market

The week ahead

tomorrow

On Wednesday, Barclays kicks off a

bank reporting season that many

expect to mark the return of cost-

cutting programmes put on ice at

the start of the pandemic. The big

lenders will be responding to the

slump in revenues and profits in the

past six months that they will

announce over the next two weeks.

Customers stopped spending on

non-essential purchases, leading to

a dramatic drop in banks’ income.

Banks also have offered

multibillion-pound payment

deferrals to customers who are

struggling. Lenders recognised large

bad debts alongside the first-quarter

results and will take more provisions

of a similar magnitude for the past

three months. The bad debts bill for

the half-year for the five biggest

banks could be about £14 billion.

The write-offs will be watched for

indications about how banks see the

economy’s trajectory in the second

half of the year, including levels of

unemployment and business

activity. There will be bright spots,

including booming investment

banking revenues as clients elevated

trading levels in volatile markets.

That is set to benefit Barclays.

HSBC and Standard Chartered may

also get a benefit from being in Asia,

where economies began to recover

earlier from the virus because it hit

there first.

Barclays and other big banks will be

responding to the slump in profits

After last year’s record

performance, analysts

at Peel Hunt predict a

45 per cent slump in

half-year sales at

Greggs to about

£300 million, as the

majority of its shops

have been shut in

lockdown. The food-

on-the-go chain is

expected to report a

loss before tax of

£25 million, compared

with a £40.6 million

profit in the previous

year. Investors will be

seeking commentary

from Roger Whiteside,

Greggs’ chief

executive, on how

quickly he expects

things to improve.

Interims Elementis,

Foxtons, Fresnillo,

Greggs, Vivo Energy,

Moneysupermarket,

Reckitt Benckiser,

Sabre Insurance, St

James’s Place, Tyman

Finals IG Design

Group,IMImobile

Trading updates

AG Barr, Greencore,

Luceco, Mitie, Virgin

Money

thursday

wednesday

friday

Increased demand for pain relief to

treat coronavirus symptoms and for

vitamins and minerals to prevent

illness boosted sales at the start of

the financial year for

Glaxosmithkline.

However, this is

expected to have led

to “destocking

headwinds” for the

drugs company

when it reports its

second-quarter

figures. After sales

in Glaxo’s consumer

division rose by 11 per

cent to almost

£2.9 billion in the first

quarter, weaker trading is

expected for the three months to

the end of June. Emma Walmsley,

Glaxo’s chief executive, above,

indicated as much in April, saying

that two thirds of the growth in

consumer sales had been related to

stocking-up by stores, which is

expected to “unwind probably in the

next quarter or so”. Shore Capital

expects Glaxo to reiterate its

full-year guidance.

Interims Aston Martin

Lagonda, Barclays,

Breedon, Devro,

Dignity, Drax,

Heathrow,

Glaxosmithkline,

Jupiter Fund

Management,

Lancashire Holdings,

Primary Health

Properties, Rathbone

Bros, Rio Tinto, Smith &

Nephew, Smurfit Kappa, Taylor

Wimpey, Tullow Oil, Unite, Weir

Finals Hargreaves Services, Victoria

Trading updates Aveva, Horizon

Discovery, Hyve, Next, Premier

Foods, Wizz Air

After its main carrier was labelled a

“national disgrace” by MPs over its

plans to cut 12,000 jobs at British

Airways, International Consolidated

Airlines Group reports its half-year

figures. It lost €535 million in the

first quarter and expects worse for

the second quarter. It is burning

cash at €200 million a week and the

group is said to be on the verge of

trying to raise €2.5 billion from

investors. Its shares are down by

two thirds this year, valuing it at

£4.1 billion.

Interims British American Tobacco,

Essentra, Indivior, Intertek, London

Stock Exchange Group, Natwest

Trading updates BT, Glencore,

Paragon Banking, Pets at Home,

Smart Metering Systems

Reduced advertising will hit

Alphabet, the Google owner, which

reports today. Its annual revenues

are tipped to fall for the first time.

Apple and Amazon report quarterly

results, too. They follow Facebook,

which updates the day before.

Interims Anglo American,

Astrazeneca, BAE Systems, Capita,

Equiniti, Hutchison China

Meditech, Inchcape, Lloyds Banking

Group, Man Group, Morgan

Advanced Materials, Robert

Walters, Rentokil Initial, Royal

Dutch Shell, RSA Insurance,

Schroders, Standard Chartered,

Ultra Electronics, Vesuvius

Trading updates 3i, Biome

Technologies, Compass, Evraz, Kaz

Minerals, Volution

[email protected]

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debt storm over City

system because regulatory changes

since 2008 have reduced the capacity of

investment banks to act as inter-

mediaries.

For the hedge fund source, market

dysfunction is about the tension

between debt-bingeing governments

and cautious financial regulators.

“They want higher volumes but a

smaller pipe,” he said. Having bailed out

a handful of hedge funds and money

market funds, regulators feel com-

pelled to make sure there is no repeat,

as with the banks 12 years ago — but do-

ing so without increasing government

borrowing costs, and therefore being

responsible for higher taxes or a return

to austerity, will not be simple.

Lagarde, said investors’ dash for cash almost brought meltdown and the ECB president was forced to change her approach

GUY CORBISHLEY/ALAMY

People on payment breaks ‘barred by banks’

rolled over after the first three months

without checking customers’ indivi-

dual circumstances and lobbying for

the ability to consider them as part of

future lending decisions.

Some lenders differentiate between

customers who can start repayments

again relatively easily and those who do

not have obvious prospects to do so —

for example, if they have lost their job

and do not look likely to get another

one. Those customers do have their

details passed on to credit rating

agencies, bankers said.

The Financial Conduct Authority

gave banks the green light to take into

account payment holidays in new lend-

ing decisions in a recent conference

call, The Mail on Sunday reported. The

regulator said yesterday that credit

scoring should not be affected by mort-

gage holidays, but a spokeswoman

added: “The intent of deferrals is to

allow those temporarily affected by the

economic effects of Covid-19 to

recover. It cannot be a reason to allow

lending on an unaffordable basis to

those with a long term loss of income.”

6 Housing market transactions should

be back to normal soon, Knight Frank,

the estate agent, has said. The number

of properties going under offer reached

a 20-year high last month and Knight

Frank’s own analysis suggests that

exchanges in the week ending July 18

were only 18 per cent below last year.

Katherine Griffiths