It’s almost five months since 11m private documents leaked out of a Panamanian law firm, Mossack Fonseca. This guest post from Howard Bilton, chairman of off-shore advisory specialist The Sovereign Group, looks at the broader state of play for those looking to minimise their tax bills.
Post-Brexit sterling slump hits airline group IAG, Pearson revenues down, post-Brexit gloom at Foxtons. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Everybody knows much of the City of London was vehemently opposed to Brexit because of fears of what might happen to banks’ interests if so-called “passporting” rights into and out of the European system were lost. What is less talked about, however, is Brexit’s impact on the European payments clearing system, Target2 — and how the passporting issue connects by way of Target2 to the realm of sovereign monetary policy. At the absolute heart of the matter is the status and treatment of payment systems worldwide, and whether or not they can really be treated as something independent and thus distinct from national monetary policy (and hence open to commercial competition) — or as integral to sovereign interests.
One interesting quirk of the post-Brexit market mess has been the lack of any mad dash for emergency dollar liquidity — so far, at least. Since the referendum, the use of the Federal Reserve’s foreign-exchange swap facilities, meant to help global banks in need of dollar funding, has been “dwarfed” by previous periods of global market stress, according to a Tuesday note from Citigroup analysts.
Theresa May has become the UK prime minister, and the internet — in the style of looking up what the EU is only after the Referendum — is only now alive with articles/tweets about who exactly Theresa May is. Indeed, amusingly enough, whilst a lot was being made of Andrea Leadsom’s “City” credentials, there was almost no word in the run up to the appointment of May’s own City credentials.
From the Bank of England’s latest Financial Stability Report: The FPC reduced the UK countercyclical capital buffer rate from 0.5% to 0% of banks’ UK exposures with immediate effect (see Box 1). Absent any material change in the outlook, and given the need to give banks the clarity necessary to facilitate their capital planning, the FPC expects to maintain a 0% UK countercyclical capital buffer rate until at least June 2017. This action reinforces the FPC’s expectation that all elements of the substantial capital and liquidity buffers that have been built up by banks are able to be drawn on, as necessary. It will reduce regulatory capital buffers by £5.7 billion, raising banks’ capacity for lending to UK households and businesses by up to £150 billion. Do click through for the full thing:
To lose one co-founder and chief technology officer may be regarded as a misfortune; to lose two looks like carelessness. Last year, Starling Bank’s future was thrown into doubt when Tom Blomfield, a co-founder and then CTO, left the startup digital-only bank along with three of its senior management. At the time, the FT reported that they left “following friction with chief executive Anne Boden”, who was previously chief operating officer at Allied Irish Banks. Blomfield went on to found Mondo, a rival startup bank. Now Starling, which was founded in 2014, has lost another CTO, Mark Hipperson, who was head of technology at Barclays corporate bank in the 90s. Hipperson left the startup last month, according to his LinkedIn, which also suggests the company has finally secured its banking license. When contacted, he said: “We had a disagreement on the way forward and I therefore decided I would resign.”
Day two of post-Brexit trading and… bank stocks are being suspended. So not a great start and it’s a sign that whatever market-stabilising powers UK chancellor George Osborne once had have been diminished. In fairness, though, he’s trying to calm a hurricane that will leave the banking sector stuck in low interest rate purgatory for even longer than expected. As per David Lock and Atul Hanamante at Deutsche Bank, with our emphasis:
‘Passporting’, per Citi, “allows financial institutions incorporated in one member state to establish branches in other member state and provide cross-border services to clients.” The fact that system now most probably needs to be renegotiated — where once there was cohesion, now there is confusion — is bad news for UK banks and the EU/ US banks that operate out of London. It’s why they say things like, “in all likelihood we would ”. They being Goldman there in 2013 but whatever, the risk is obviously real. So how would it all work?
EIF’s established reputation in the European VC market is substantiated by its significant role in European investment and fundraising activity. In this paper we estimate that the investment activity backed by EIF represented 41% of total investments in Europe in 2014 (29% in 2007). The share directly attributable to EIF amounts to 10% (5% in 2007), hinting to the significant leverage that characterises EIF-backed investments. Moreover we estimate that fundraising volumes backed by EIF in 2014 amount to 45% of the overall volumes collected by European VC investors (36% in 2007), against a share directly attributable to EIF totalling 12% (5% in 2007). That’s from a European Investment Fund research paper published at the start of June and it shows the extent to which dynamic European venture capital relies on the munificence of sluggish European government — as told by said government, of course.
Fresh from the inbox, first from Goldman: We expect the BoE to implement policy actions aimed at maintaining market functioning (in difficult circumstances), by activating swap lines with other major central banks and by announcing additional liquidity operations, including the provision of term funding for UK banks.
It has been a difficult Monday morning for India’s bankers, economists and analysts. Not only has the Rajan-era come to an unexpected close but the monsoon has thumped into the country. Now, where once certainty and clean pants existed, a world of confusion and splashed trouser legs sits soddenly. The usual notes are coming through into our inbox too, most expressing said confusion and near-term worry, even though markets are shrugging a bit so far. Here’s a one month view of the INR and the Sensex:
From Bernstein’s Chirantan Barua and team: They “wouldn’t be surprised”, btw, to see house prices down 20-30 per cent if Brexit were to happen as sterling falls, volatility increases and people realise it’s a market ripe for a drop.
There are many perplexing anecdotes in the book by Metro Bank chairman and co-founder Vernon Hill, but one stands out as particularly difficult to believe. A little girl, just four years old, had come into a Metro Bank branch with her parents to use its coin counting machine (pictured above). The bank offers a prize to people who guess the value of their coins correctly, but, sadly, the girl didn’t get it right. Metro Bank’s magnanimous staff gave her the prize anyway after she started crying — other bankers, Hill suggests, would never have consoled the girl by doing the same. But recent events in the United States at the bank that bought Hill’s old business got us thinking. What if the little girl had guessed correctly? What if she had been right and the machine had been wrong? In short, we started wondering, are Metro Bank’s coin counting machines accurate?
The unabated rise in global indebtedness periodically causes spasms of angst and chilling headlines around the world. Apparently we are all imminently sinking into a debt Ragnarokk that will inevitably end with the mass default of most of the world’s biggest economies. But maybe we shouldn’t be so scared.
HSBC is the latest bank to see a bite taken out of its profits, Aberdeen’s assets under management are down by £38bn, Just Eat’s takeaway orders are up 41 per cent. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Five large companies are expected to suffer big executive pay moans from shareholders today, Lloyds’ bank profits are down 46 per cent, WPP’s billings are up 8 per cent. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.