the times | Saturday August 1 2020 2GM 53Business
Alison Rose became
chief executive last
year and changed
the Royal Bank of
Scotland namecoronavirus pandemic. Tom Blomfield,
the bank’s co-founder, swapped the
chief executive’s role for that of
president in May.
Monzon’s review had not yet high-
lighted a need to compensate custom-
ers “due to past actions” so was not re-
flected in the balance sheet published
with Monzo’s annual results this week,
with any costs arising from the investi-
gation yet to be accounted for.
Monzo’s annual report did not give
any further details over what the work
relates to. The bank has been freezing
and closing certain accounts in recent
months in order to comply with anti-
money laundering regulations, provok-
ing anger among some customers.
Its annual accounts for the year to the
end of February showed significant
growth in its revenues and customer
base but losses widened from £47 mil-
lion to £114 million.
EY, the bank’s auditors, conducted
additional due diligence in light of“material uncertainties” over its going
concern status. This is thought to have
delayed publication of the results.
Monzo’s directors said that they were
confident in the bank’s ability to
“execute its business plan and raise
capital if necessary”.
In the current financial year a
collapse in overseas travel has hit
Monzo’s transaction fees, its primary
source of revenue, while it could also be
affected by an FCA ban on fixed fee
charges on overdrafts. Gary Hoffman,
60, chairman of Monzo as well as the
Premier League, stepped in to help the
bank’s executive team oversee key
areas between February and June.
The bank has also revealued it recov-
ered almost all of £773,000 worth of an-
ticipated credit losses related to a pre-
paid card programme it ran with the
UK arm of Wirecard, the disgraced
German payments group.
Monzo and the FCA declined to
comment.Monzo is reviewing the quality of its
financial crime controls and warned
that the outcome could have a signifi-
cant impact on its finances.
The troubled digital bank, which
issued a warning on Thursday over its
ability to remain in business, began an
investigation of its “financial crime
control framework” in June after a
review by the Financial Conduct
Authority.
Monzo said it could not anticipate
the outcome or implications of the
work but said “they could be material”.
Founded in 2015, Monzo wants to
disrupt the retail banking industry with
features such as an app that allows
customers to track their spending and
to hold savings in different pots.
It has endured a turbulent period. Its
valuation fell by about 40 per cent in a
fundraising last month and it has made
120 job cuts in the wake of theJames Hurley, Katherine Griffiths
£114m
Losses at the digital
bank for the year
to the end of
February, up from
£47 million
Source: MonzoWarning over Monzo financial crime review
in the arrest of the Huawei executive Meng Wanzhou, have put it under pressure
ANTHONY KWAN/GETTY IMAGESrestructuring plans, the latest of which
was a target of 10-12 per cent return on
equity by 2020, set in February as the
Covid-19 crisis began to spread around
the world. That “appeared optimistic at
the time... and became almost immedi-
ately redundant as the near-global
lockdown took hold,” noted Ian Gor-
don, an analyst at Investec.
The bank is pressing ahead with
cutting 35,000 jobs from its workforce
of 235,000. The likelihood is that
number will have to be much higher to
make a meaningful difference to its
bloated costs. With HSBC battling to
keep both China and its supporters in
Hong Kong onside, the knife will fall in
the US and Europe.losses alongside half-year results on
Monday. Analysts expect the bank to
make a $2.5 billion pre-tax profit in the
three months to June 30, with impair-
ments of $2.7 billion, on top of the $3 bil-
lion hit it took in the first three months.
The bank is also under pressure
about its long-term profitability due to
the long-term outlook for very low in-
terest rates. The squeeze on net interest
income — the difference between pay-
ments for deposits and interest charged
on loans — is one of the most serious
challenges facing most big banks but is
a particular problem for HSBC, which is
deposit-heavy due to its army of saving
customers in Hong Kong.
HSBC has been through successiveNatwest sees red over impact
of Covid-19 on the economy
A multibillion-pound provision for ex-
pected losses as more people lose their
jobs and business activity weakens led
to Natwest group producing a £770 mil-
lion loss for the first half of the year.
The bank followed Lloyds and Bar-
clays in painting a gloomier picture
than before about the economy.
The impairment of £2.1 billion for the
three months to the end of June was
double analysts’ expectations and
followed “extensive modelling”, Alison
Rose, Natwest’s chief executive, said.
Total bad debts could hit between
£3.5 billion and £4.5 billion this year, the
bank believes.
Natwest, the UK’s biggest lender to
businesses, predicts a 14.4 per cent drop
in GDP this year, with a forecast of a
16.9 per cent drop as its most severe
negative forecast. Unemployment
could hit 9.2 per cent, or up to 14.4 per
cent, if there is a steep downturn, and
house prices could fall by 8.9 per cent,
or at worst 11.5 per cent, it says.
The continuing impact of the pan-
demic and the government’s support
measures, which start to come to an
end this month, was “uncertain”, the
bank said. That could lead to Natwest
having to write down the goodwill value
of its business, it warned.
Ms Rose, 51, who became chief exec-
utive in November, renamed the bank
from Royal Bank of Scotland to Nat-
west after its English brand last week, in
an attempt to move on from its near-
collapse during the financial crisis.
The government owns a 62 per
cent stake after its £46 billion bailout
12 years ago and pushed back its
planned disposal of all the shares by a
year to March 2025, partly because of
the pandemic. Profits collapsed from
£2.7 billion in the first half of last
year to the £770 million loss.
Income fell from £7.1 billion to
£5.8 billion.
However, capital levels
remained strong, with a
sector-beating core equity
tier one ratio of 17.2 per
cent. Sir Howard Davies,
Natwest’s chairman, said:
“We are open for business.
We are not in any way like
in the financial crisis. We are in
a strong position.” The shares
were steady at 106p.
The bank has excess capital ofbetween £6 billion and £7 billion, some
of which will be returned to sharehold-
ers once regulators lift the ban on banks
paying dividends, which they intro-
duced as a way to ensure financial sta-
bility in the wake of the Covid-19 crisis.
Natwest has lent £10 billion in gov-
ernment-backed loans, including
£6 billion in bounce-back loans to
253,000 small businesses and just over
£3 billion in coronavirus business inter-
ruption loans for medium-sized busi-
nesses. It has 50,000 staff working from
home, who can continue to do so into
next year; 10,000 staff are in branches.
Natwest will push ahead with cuts to
Natwest Markets, its investment bank-
ing business, sticking to its plan to cut
costs by £250 million this year.
The bank’s results follow those of
Lloyds, which swung to a £602 million
loss after taking a £3.8 billion impair-
ment charge, and Barclays, which made
a £1.3 billion profit after £3.7 billion in
expected losses. Standard Chartered
reserved $1.58 billion for bad debts and
made a $1.6 billion profit. HSBC reports
on Monday.TSB’s ‘digital advantage’
TSB posted a £66 million loss after it
predicted worsening house prices
and unemployment (Katherine
Griffiths writes).
The UK’s seventh biggest bank
said its credit impairment charge
increased by £87.5 million compared
with the first half of last year.
Debbie Crosbie, chief executive,
said a new IT platform had helped to
deliver services to customers
digitally. The bank claims the
system will give it a strong
advantage over rivals.
TSB’s loss for the first six months
compared with a £21 million profit
last year. It granted 38,000
mortgage payment holidays and
50,000 payment deferrals for loan
and credit customers.
It extended £400 million in
government-guaranteed bounce
back loans to 15,000 small and
medium-sized businesses.Katherine Griffiths Banking Editor