The Times - UK (2020-07-31)

34 2GM Friday July 31 2020 | the times

Business

1

Tui, Britain’s biggest tour

operator, will close almost a

third of its high street travel

agents in the UK and Ireland as it

faces the “greatest crisis” in the

industry’s history, it has

announced. Page 11

2

It was once Europe’s most

widely printed publication but

the Argos catalogue has been

killed off by online shopping. More

than one billion copies of the

catalogue have been printed since

its launch in 1973 and at its height

only the Bible was more popular

in British homes. Page 17

3

The world’s largest technology

companies cement their

dominance over the digital

economy by using sharp tactics,

according to documents and

testimony released by US

politicians during a historic

inquiry into Silicon Valley. In their

quarterly figures, Amazon raced

ahead, Facebook and Apple beat

forecasts, but Alphabet, Google’s

owner, had its first year-on-year

fall in revenue. Pages 19, 33 and 36

4

Global markets retreated

after America and Germany

officially entered recession

and some of the world’s largest

companies revealed huge losses as

a result of Covid-19. Page 33

5

Lloyds Banking Group has set

aside almost £4 billion for bad

debts after becoming more

pessimistic about the UK

economy. The bank has reported a

pre-tax loss of £602 million for the

six months to the end of June.

6

Sky’s revenues fell by more

than 10 per cent in the second

quarter after the Premier

League and other sports events

were disrupted and advertisers

slashed spending. Turnover

dropped 13 per cent to $4.1 billion

after it allowed customers to

suspend monthly sports

subscription payments during the

hiatus in live sports, according to

results from Comcast, its

American parent. Page 36

7

Royal Dutch Shell, the Anglo-

Dutch oil giant, fell to a record

$18.4 billion loss in the second

quarter after the pandemic hit oil

and gas prices and forced the

group to cut its price forecasts. It

booked $16.8 billion of impairment

charges on its assets as a result of

its new price outlook. Page 38

8

The Covid-19 pandemic is

threatening delays and

further cost increases in the

construction of the Hinkley Point

C nuclear plant, the French

developer EDF has warned. It said

that slower work at the Somerset

site has increased the risk that

Britain’s first new nuclear plant in

a generation will not be able to

generate power by December 2025

as planned. Page 39

9

Astrazeneca posted a 14 per

cent rise in first-half revenue

and improved profit and

cashflows as Britain’s biggest drugs

company continued to benefit

from the launch of new

blockbuster drugs. Page 40

10

Anglo American, the

mining giant, has reported

a sharp drop in first-half

profits after production fell by

11 per cent because of lockdowns

due to the pandemic. Page 41

Need to know

Lloyds predicts

£4bn hit from

bad debts as

income slumps

Lloyds Banking Group has set aside

almost £4 billion for bad debts after

becoming more pessimistic about the

UK economy.

The bank reported a pre-tax loss of

£602 million for the six months to the

end of June yesterday, compared with

a profit of £2.9 billion a year ago, after

booking £3.8 billion in impairments. Its

impairment charge of £2.4 billion for

the three months to June 30 compared

with £1.4 billion in the first three

months of 2020. Lloyds shares closed

down 2¼p, or 7.6 per cent, at 26¼p.

The UK’s largest retail bank employs

more than 50,000 people in the UK. It

owns Halifax, Bank of Scotland, Scot-

tish Widows and MBNA. The size of the

bank and its place as the UK’s largest

mortgage lender make its judgments on

the economy significant. In Lloyds’s

most severe forecast, unemployment

could peak at 12.5 per cent next spring

and GDP could drop by 17.2 per cent this

year. The most likely path will be a 10

per cent drop in GDP and unemploy-

ment to hit 7.2 per cent this year.

Lloyds said the outlook was “highly

uncertain” with the impact of lower in-

terest rates and economic fragility like-

ly to continue for months. The bank

predicts impairments to hit between

£4.5 billion and £5.5 billion for 2020.

Income fell 16 per cent to £7.4 billion

and Lloyds gave 1.1 million payment

holidays to retail customers and 33,000

capital repayment holidays to business-

es. Some 72 per cent of those customers

have started to repay their loans, with

25 per cent taking further payment

holidays and 5 per cent in early stage

arrears.

António Horta-Osório, the chief

executive, said that the impact of

Covid-19 had been “profound” but the

bank’s financial strength would enable

it to weather the storm.

Lloyds has provided £9 billion in gov-

ernment-backed bounce-back and cor-

onavirus business interruption loans,

making up 20 per cent of the total.

Lord Blackwell, company chairman,

has called for the government to

nationalise the 100 per cent guaranteed

bounce-back loans so that their debt

could be sold to long-term investors

such as insurance companies.

It is feared that billions of pounds of

the loans will have to be written off.

Lloyds would welcome a co-ordinated

approach by the government between

banks about how to deal with the loans,

William Chalmers, its finance director,

said.

Bounce-back loans of up to £50,000,

which are aimed at small businesses,

were likely to see “higher defaults”, he

said.

Mr Horta-Osório, 56, will step down

next summer. The Portuguese banker

said that he had given Lloyds 12

months’ notice so that he could lead the

bank during the next difficult period.

“At the moment I don’t have any addi-

tional plans,” he said.

Lloyds is also changing its chairman,

with Lord Blackwell handing over to

the veteran investment banker Robin

Budenberg early next year.

Lloyds wants its staff working from

home to return to the office as soon as

it is safe, Mr Horta-Osório said, but he

predicted that office working would be

different in the future, with much more

flexible hours.

Andrew Coombs, an analyst at

Citigroup, said that Lloyds “has kit-

chen-sinked to some extent” likely bad

debts, but that the picture could

deteriorate further if the economic

recovery is slower than predicted.

Katherine Griffiths Banking Editor

L

loyds expects bigger house

price falls, higher

unemployment and steeper

declines in commercial

property prices than it did

three months ago (Louisa Clarence-

Smith writes). The lender’s base case

scenario is that UK house prices will

fall 6 per cent this year, worse than

the 5 per cent it predicted at the end

of April.

Even in an upside scenario, it

believes house prices will fall by 3.7

per cent, before recovering in 2021.

In Lloyds’s severe downside model,

prices could fall as much as 9.5 per

cent this year and 29.2 per cent by

2022.

The gloomy outlook comes as the

bank, which is Britain’s biggest

mortgage lender, said it has granted

472,000 mortgage payment holidays

to borrowers during the crisis.

It expects GDP to decline by 10

UK GDP Quarterly growth

2020

J F M A M J J

Lloyds share price

Forward thinking

Impairments

First half

2020

£3.8bn

First half

2019

£579m

Lloyds most likely scenario

Severe downside scenario

Sources: Refinitiv, ONS

2015 2016 2017 2018 2019

2020

Over

three

years

Q1, 2020

2

0

-2

-4

-6

-8

-10

-12

-14

-16

-18

Scenarios

70p

60

50

40

30

20

10

0

-10%

-1.8%

-9.4%

-17.2%

House prices

‘could fall by

nearly 10%’

Recovery sign at Standard Chartered

Standard Chartered has taken a

$1.58 billion provision for loan losses for

the first six months but predicts its key

markets in Asia will pull the world out

of recession.

The bank, which focuses on Asia, the

Middle East and Africa, posted profit of

$1.6 billion for the past six months,

down 33 per cent but better than

analysts expected against a backdrop of

the pandemic and political unrest in its

largest market, Hong Kong.

Bill Winters, chief executive, said:

“Many clients in some of our larger

markets are recovering strongly and

already operating at close to their pre-

pandemic capacity.”

Standard Chartered is listed in

London and is one of the UK’s largest

banks. Its focus on emerging markets,

particularly Asia, puts it in the centre of

the cooling relations between the UK

and China, as well as the United States

and Beijing.

José Vinals, Standard Chartered’s

chairman, said that relations between

the US and China remained “highly

charged” and that “more collaboration

— not less — is the best way to find a

sustainable equilibrium in these com-

plex situations”.

He added that Hong Kong would

“continue to play a key role as an inter-

national financial hub” and said the

bank was “fully committed to contrib-

uting to its continued success”.

Standard Chartered has endorsed

China’s new security law in Hong Kong

but it did not sign a petition backing the

bill, unlike its larger rival HSBC.

Credit impairments rose from

$254 million in the first half of 2019. Of

the $1.58 billion provision, $668 million

of loans were in early stages of impair-

ment, with $899 million in the “stage 3”

bucket that banks classify as showing

clear signs of an inability to repay.

Strong investment banking results

partly offset the fall in profits from bad

debt provisions. Income rose by 3 per

cent to $8 billion and the bank im-

proved capital strength to 14.3 per cent

from 13.5 per cent, helped by the sale of

its stake in the Indonesian bank Perma-

ta. Standard said that it expected in-

come to be lower in the second half and

that it would step up cost-cutting.

Joseph Dickerson, an analyst at

Jefferies, said Standard Chartered’s

“revenues, costs, impairments beat

consensus estimates” but that impair-

ments were “meaningfully ahead”.

Katherine Griffiths

Monzo faces

fight for its

survival after

losses mount

Monzo has raised concerns about its

ability to survive as it reported widened

losses of £114 million.

The digital bank warned in its annual

report that “the ability of the group to

continue as a going concern is subject

to material uncertainties” due to the

risk that revenues may be “significantly

lower” and that raising new funds may

be difficult. The report also contained a

warning from Monzo’s auditor, EY, that

revenues and credit losses had been

“significantly impacted by Covid-19”

Katherine Griffiths

António Horta-

Osório expects a

bumpy ride before

he leaves Lloyds

next year

$1.58bn

Credit impairments, up from $254m

Source: Standard Chartered