Month: July 2014

Lloyds PPI Bill goes past £10bn mark

Lloyds PPI bill

Lloyds Banking Group’s bill for mis-selling Payment Protection Insurance (PPI) has moved above the £10bn mark.

The taxpayer-backed lender made an extra £600m worth of provisions in the first half of 2014, taking the total amount the bank has set aside or paid to £10.4bn.

The bank said the rate of complaints related to PPI had been lower than anticipated, with the increased provisions estimating a further 155,000 complaints.

It came as the bank announced a 32pc increase in underlying profits in the period to £3.8bn and said it would ask the Bank of England for permission to begin paying dividends in the second half of the year, a development expected to ease the sale of the Government’s 25pc stake following its 2008 bail-out.

Lloyds put the strong trading performance down to an improving UK economy that meant charges on bad loans declined by 58pc compared to last year.

However, the PPI charge and other issues including a £218m fine from US and UK authorities over rigging interest rates, as well as restructuring costs related to the EU-mandated sell-off of TSB, meant the bank’s pre-tax profits fell from £2.1bn to £863m.

On Thursday, Lloyds chief executive Antonio Horta-Osorio apologised for the bank’s role in the Libor scandal and the rigging of the Repo Rate benchmark – aligned to the emergency fund used to support UK banks during the crisis.

Mr Horta-Osorio said the actions were “totally unacceptable and condemn them without reservation”.

Lloyds said it expected pre-tax profits in the second half of the year to be “significantly ahead” of the first-half figure.

“We continued to successfully execute our strategy, further enhancing our leading cost position and low cost of equity, by investing in the products and services our customers need and further strengthening and de-risking our balance sheet,” said Mr Horta-Osorio.


UK Economy grew back at pre-crisis level

The UK economy grew by 0.8% in second quarter of 2014, official figures show

The figures, from the Office for National Statistics (ONS), show the economy is now 0.2% ahead of its pre-crisis peak, which was reached in the first quarter of 2008. The ONS said the economy had grown 3.1% since the second quarter of last year.

Chancellor George Osborne said: “Thanks to the hard work of the British people, today we reach a major milestone in our long-term economic plan.”

But shadow chancellor, Ed Balls, said people were not feeling happier: “With GDP per head not set to recover for three more years and [with] most people still seeing their living standards squeezed this is no time for complacent claims that the economy is fixed.”

The figures are the first attempt to measure the full range of the UK’s economic activity. The ONS says that although this preliminary estimate has less than half the data it needs to make a full assessment, revisions are “typically small” between the preliminary and third estimates of GDP.


The UK’s service sector is the only part of the UK economy that has passed its previous 2008 peak, although that accounts for the lion’s share – almost 80% – of the entire economy.

Other key sectors, including construction, industrial production and manufacturing, have yet to outstrip levels reached in 2008.

The UK economy is forecast to be the fastest growing among the G7 developed nations, according to the International Monetary Fund (IMF).

On Thursday, the IMF predicted the UK would expand by 3.2% this year, up from a previous forecast of 2.8%.

Anthony Reubens, head of statistics, BBC News

Let’s take a pinch of salt with these figures.

First of all, this is the preliminary estimate, so it’s an educated guess based on about 40% of the economic activity that will go into later estimates.

But also, in two months the ONS will revise these figures for a once-in-15-years change to the methodology.

It will change the treatment in the GDP figures of things like spending on research and development by companies and the government buying weapons.

So the trend is almost certainly right – we can say that there was considerable growth in the economy in the second quarter – but 0.8% is unlikely to be the eventual figure.

And it may turn out that we have not yet reached the 2008 peak, or indeed that we did so a while ago.


Output per head is not expected to reach its pre-crisis level until 2017, partly because productivity from those in work remains weak, along with the fact the population as a whole has grown.

The news was given a muted welcome by Chris Williamson, Markit’s chief economist: “Any celebrations will of course also be marred by the fact that the milestone reminds us that it has taken some six years for the country to merely regain the economic might it had before the financial crisis struck.”

Other countries recovered the output lost to the crisis much earlier than the UK. Germany regained its peak in 2010, with the US and France following a year later.

Set against that are changes due to be made to the way the ONS calculates its figures, which will be brought in in September. These may show the economy was actually stronger in 2008 than had been thought, and therefore the ground was made up sooner.

[BBC News]

Could this be The End of Free Banking?

Banks face a full investigation from the Competition and Markets Authority after the body found that “essential parts” of the system do not serve businesses and consumers.

1. The end of free banking?

The Competition and Markets Authority has said that bank charges such as overdraft fees may be “cross-subsidising” bank accounts that are free if in credit, and that offering these accounts for free “may distort competition”.

The CMA says removing “free if in credit models” may lead to greater transparency and moves towards “more cost-reflective charging structures”. In the past, banks have found other ways to make money from “free” current accounts, such as selling Payment Protection Insurance.

“It is also possible that there might be a degree of cross-subsidy in the personal current account market, which may be distortive of competition. Indeed, the ‘free if in credit’ model often involves cross-subsidy by other revenue streams for current accounts such as overdraft charges.”

However, the regulator may find it difficult to force banks to remove this, since it is likely to be deeply unpopular.

2. Break-up of the banks

The Miliband option: The Labour leader has pledged to create two new banks out of the pieces of Lloyds, RBS, Barclays, HSBC and Santander taken from them.

Analysts at Deutsche Bank have said this would “involve vast shareholder value destruction and financial waste”, pointing to the creation of Lloyds spin-off TSB, which it estimates will cost around £2.5bn for a 2-6pc share of the market.

3. Make life easier for smaller banks

This could include lowering the capital requirements for smaller, less systemically-important lenders.

As The Telegraph reported earlier this week, the Bank of England is lobbying international regulators to ease risk weights – the standardised measures of how safe loans are, which would allow smaller banks to be on a more even playing field.

However, this runs the risk of smaller, less stable banks potentially over-stretching themselves.

4. Open up data to encourage switching

More initiatives such as a recently-announced move to allow consumers to download their financial histories in order to find the best account, as well as more information on what offers are around, could be recommended.

However, it is possible that consumers are likely to see little gain from moving. As Deutsche Bank notes:

“We expect these measures to contribute to a market in which customers feel more able to switch but remain fairly un-incentivised to do so given a general lack of product differentiation, either from a product or pricing perspective.

“This lack of product differentiation is not due to an absence of innovation, rather because good ideas are copied.”

Low interest rates and money printing give banks little incentive to compete on current accounts, the analysts say:

“The liquidity provided by current accounts has probably never been less valuable than at present given QE-driven flooding of world markets”

5. Crackdown on overdraft fees

These are one of the greatest problems with the market at the moment, according to the CMA:

“In terms of overdrafts, we are concerned that consumers are not being served well by their [current accounts].

“The difficulty in comparing charging structures has arguably increased over the last two years and… consumers are not able to compare costs across providers to assess which PCA is most suitable for them.”

Many banks have altered overdraft fees in recent months, but regulators could crack down on them, for example by introducing maximum charges. However, this could prove to make bank accounts more similar than they already are.


Will Jump in Inflation bring Bank of England rate rise closer?

Consumer prices in the UK rose much more sharply than expected in June – what are the implications for the Bank of England?

The sharper-than-expected rise in UK inflation to 1.9pc in June has sent the pound up against the dollar in anticipation that the Bank of England could be forced into an early rate rise. But are these worries justified?

What did the figures say?

Inflation, or the rise in the cost of consumer goods, climbed to 1.9pc in June, according to the Office for National Statistics. By contrast economists had, on average, predicted that inflation would edge up slightly to 1.6pc in June.

Why were economists so far off the mark?

The big surprise in last month’s inflation figures was that the price of clothes and shoes did not fall, as they usually do in June with the onset of summer sales. This is thought to be because the warm weather has kept the sales of summer fashion lines in demand and taken the pressure off the shops to start discounting.

What does this mean for the Bank of England?

The UK is currently in an economic sweet spot where the economy is growing but inflation has remained weak. This has allowed the Bank to maintain interest rates at their rock bottom levels, stimulating spending and further supporting economic growth: a virtuous circle.

But the economic thinking goes that this situation is unsustainable because growth will hit a tipping point where it will start to drive stronger wage growth, boosting demand and causing prices to rise too fast.

The trick for the Bank is to predict when this tipping point will occur. Then it can raise rates to curb spending and encourage saving, in the hope of keeping inflation near its 2pc target. At the moment, the Bank is expecting to start raising rates late this year or in early 2015.

So on the surface a sudden jump in the inflation rate to near the Bank’s target level should raise alarm bells, suggesting they got their sums wrong and need to rethink the timing of a rate rise.

But considering that the main driver behind the higher-than-expected inflation was probably a one-off effect that could be reversed next month, the Bank is unlikely to get its knickers in a twist.

It is partly due to the level of month-to-month “noise” in the inflation figures that the Bank of England’s own forecasts focus on the quarterly average, and as Sam Hill at RBS Capital Markets points out, June’s figures confirm the Bank’s prediction that inflation would average 1.7pc in the second quarter of the year.

Samuel Tombs at Capital Economics believes inflation will ease again by the end of the year and remain below the 2pc target in 2015, giving the Bank plenty of breathing space.

This will come as a relief to the Bank since there are still doubts over whether the economy is strong enough to withstand a rate rise. Recent data showed that growth in industrial production and construction slowed in May, suggesting that the recovery is still fragile.


Record year for asset based finance

Record year for asset based finance as businesses step up borrowing against invoices to fund growth

  • Invoice finance shows 29 per cent growth since 2009/10…
  • …contrasting with 19 per cent fall in traditional lending products over the same period

The supply of asset based finance to UK businesses has hit a record high in the last 12 months with an average of £17.5 billion in use at any one time by businesses over the last year*, says the Asset Based Finance Association (ABFA), the body representing the asset based finance industry.

This is 9.4 per cent up on last year’s average and up 29 per cent from the £13.6 billion of asset based finance in use at the height of the recession in 2009/10.

In contrast, the average value of traditional forms of funding supplied to businesses fell business, SME by 5 per cent over the same period**. Net traditional funding to businesses is now down by almost £100 billion since 2009/10, falling 19 per cent from £485 billion to £391 billion.

The ABFA explains that 80 per cent of asset based finance is invoice finance, in which businesses secure funding against their unpaid invoices, while the other 20 per cent represents the fast-growing area of asset based lending, in which businesses can raise money secured against a range of other assets they own, including stock, property and machinery.

The ABFA says that these figures show that invoice finance is now a mainstream funding product for businesses, playing a major role in filling the SME lending gap created as banks remain restricted in the levels of finance they can provide to businesses.

Martin Morrin, Chairman of the ABFA, says: “Invoice finance is playing a bigger role than ever in funding British businesses’ growth, and has truly stepped into the mainstream of business funding.”

“Since the credit crunch, invoice finance has become an even more important source for SMEs for funding as they struggled to access traditional term loans. Now, as the economy recovers, more and more businesses are using it to fund their growth, and that’s pushed demand for funding to levels we haven’t seen before.”

“More and more businesses are now seeing their invoices as a significant untapped asset they can borrow against, and that banks and other institutions actively want to lend against. It has been the business funding success story of the last few years.”

“The Government and the business community have been looking for a new mainstream financial product with the potential to fill the gap created by the continued lack of term lending. These figures show that asset based finance, and invoice finance in particular, is that product.”

ABFA says that many businesses do not realise that the invoices that they have outstanding with customers are often the most valuable asset owned by the business, and that banks and other funders will willingly lend against them. Generally speaking, loans that are not secured against assets have become harder to find over the last five years.

* Year end: March 31 2014. Based on loans outstanding at one time. Source: ABFA
** Average net bank loans outstanding to private non-financial corporations, year end: March 31 2014. Source: Bank of England


Fresh Push For New Farming System

A new farming system which would see a wider uptake of share farming could enable thousands of young people to get their first foot on the farming ladder according to the Country Land and Business Association.

With the Great Yorkshire Show this week it seemed fitting to keep update with the latest farming news. If a quarter of the country’s farmers aged over 65 entered into share farming agreements, more than 3,000 new entrants could start working the land, the CLA said as it announced a new drive to encourage share farming at the Great Yorkshire Show.

But the campaign is “misguided”, the Tenant Farmers Association said. Chief executive George Dunn said share farming was a way for landowners to benefit from the tax system and that ministers were happy to back the farming model because it was “an easy win”. Instead, effort should be concentrated on securing more long term tenancy arrangements, he said.

CLA president Henry Robinson dismissed the TFA’s criticism, insisting now was the right time to promote share farming because agricultural college’s were full of potential new entrants who were interested in new ways of working: “Share farming not only offers older farmers a way of reducing their workload while maintaining an income but also gives new entrants an increasingly rare opportunity to start a career in agriculture.”

The farming model differs from traditional contract farming, in that both parties share the risk and the profits on a pre-agreed percentage. The existing farmer provides a proportion of his farmland for the partner to deploy their own workforce and machinery.

Environment Minister Owen Paterson said he believes the arrangement had a lot to offer.

“Share farming gives new entrants more opportunities to start a business and build up their skills drawing from farmers with many years’ experience.”

[Yorkshire Post]

UK Manufacturing Output in Surprise Fall

Manufacturing output in the UK recorded a surprise fall of 1.3% in May, the biggest decline since January 2013.

UK manufacturing output contracted for the first time in six months in May, disrupting a run of “Goldilocks” data that showed the recovery was gathering pace.

Factory output shrank by 1.3pc on a month-on-month basis, according to the Office for National Statistics (ONS), following downwardly revised growth of 0.3pc in April. The figure from the Office for National Statistics (ONS) was much weaker than economists’ forecasts of an increase of 0.4%.

Manufacturing data and surveys so far this year have indicated that the sector is growing robustly. The wider measure of industrial output also fell in May, the ONS figures showed, dropping by 0.7%. Compared with a year earlier, manufacturing output was up 3.7% in May, down from April’s increase of 4.3%, while annual growth in industrial output slowed to 2.3% from 2.9%.

May’s decline in output echoes a similar stutter in German industrial production, which fell 1.8% in May, figures released on Monday showed.

Most economists said the sector was still likely to have made a healthy contribution to UK growth in the second quarter. “We had five consecutive monthly increases in April, which was phenomenal,” said James Carrick, an economist at Legal and General. “We didn’t quite make it six, but the analogy I would give is that if you think about the qualifying stages for the World Cup, if you win five matches and you lose one, you’re still top of the league.”

Others warned that “the bell is tolling for the UK’s economic ‘goldilocks’ period” of strong growth and low inflation. Marc Ostwald, a strategist at ADM Investor Services, said the capacity constraints and concerns about a premature rate hike highlighted in the BCC survey acted “as a timely warning that although growth is stable, challenges facing our recovery still remain.

“One has to wonder whether the bell is tolling for the UK’s economic “goldilocks” period, and by extension for the [pound’s] strength.”


David Tinsley, UK economist at BNP Paribas, described the results as a “heavy dose of reality” after a run of upbeat economic data.

“It is quite possible that the fall today reflects some erratic/seasonal influences,” Mr Tinsley said.

“It is noteworthy that German industrial production was similarly surprisingly weak yesterday. It could be production plans were affected by the relative lateness of Easter.”

Jeremy Cook, chief economist at currency company, World First, said the results were “puzzling”.

“This is the first decline in six months for UK factory output and calls into question just how strong the balancing act of UK growth really is.”

In May, the Bank of England predicted that the UK’s economic growth would begin to slow in the second half of 2014, but governor Mark Carney said recently there were few signs of this happening.

The pound fell by half a cent to $1.7085 against the dollar on Tuesday following the surprise fall, which saw output contract in ten out of thirteen manufacturing subsectors. On an annual basis, the UK’s industrial and manufacturing sectors have expanded by 2.3pc and 3.7pc respectively.

[Telegraph and BBC]

How to Maximise Your Buy-to-Let Profits

Is your buy-to-let property as tax efficient as it could be? You can cut your tax bill significantly by claiming back a range of day-to-day costs.

Claiming tax deductibles as a landlord can significantly reduce your HMRC bill. Here’s our guide to what is – and isn’t – an allowable expense. HM Revenue & Customs views letting out a property as a business like any other, which means all landlords must pay tax on the profits they make – but only after costs are deducted. The taxman calls these “allowable expenses” and they cover a broad range of items. While most capital expenses – those involved in buying and selling a property, such as the purchase price and agent and legal fees – cannot be used to offset your income tax, many other costs can.

Mortgage fees

Finance Broker and arrangement fees are tax deductible and can be claimed back in the year you arranged a mortgage. In fact, any incidental costs associated with taking loan finance are allowable.

Mortgage interest

You can use all the interest you pay on your mortgage each year to offset your tax bill. If you have an interest-only mortgage, your whole monthly repayments will be tax deductible. If your repayments are roughly equal to your net income, you will not have to pay any income tax on the property at all.

Many savvy landlords keep their property mortgaged even if they can afford to pay it off to benefit from this tax break.

Letting agent fees

If you choose to employ an agent to find a tenant or manage your property, you’ll probably pay between 10pc and 15pc of the monthly rental income in fees. This means on a typical tenancy worth £750 per calendar month, you could claim as expenses £1,350 a year for letting fees alone.

Securing a tenant

If you decide to rent your property privately, you can claim back the cost of advertising for tenants, purchasing a tenancy agreement, credit checking, referencing, deposit protection and professional inventory costs. These could come in at more than £300 each time a new tenant moves in, according to the National Landlords Association.

Buildings and contents insurance premiums

Specialist landlord insurance will cover the building, your liability as a landlord and loss of rent. You can also typically add contents cover, home emergency, legal expenses and rent guarantee insurance. Cover for a typical low-risk buy-to-let property costs around £200 a year.

Maintenance and repairs

Any money you spend keeping the property in a good state of repair is tax deductible. While you cannot claim for renovations, extensions or improvements that add value to the property, you can offset expenses to correct wear and tear.

Property repairs can include mending broken windows and doors, repairing broken cookers, white goods, furniture or guttering, painting and decorating and replacing or fixing the roof.


If the property is furnished, you can choose to claim back either a general “wear and tear” allowance or the exact cost of replacing individual items.

The wear and tear allowance is 10pc of the rent annually, minus any costs you pay on behalf of the tenant such as council tax. You do not have to have spent any money replacing or repairing the furniture in a given year to claim this allowance.

Alternatively you could claim the exact cost of replacing furniture in the property. This only applies to existing furniture – you cannot claim back the cost of furnishing it in the first place.

Ground rent and service

If you are a leaseholder, you will usually pay ground rent to the freeholder. Service charges are common in blocks of flats and can vary greatly. Basic charges cover cleaning, maintenance, heating and lighting for common areas, but other costs could include security or concierge staff. You can also claim back any on-site services such as gardening and electrical costs.

Council tax and utility bills

If you pay any council tax or utility bills that a tenant would normally pay, you can claim the whole cost. You can also claim these costs during void periods, when there is no tenant living in the property.

Until April 6 2015, landlords can claim a special tax deduction of up to £1,500 per property for insulation. The Landlord Energy Saving Allowance covers the cost of installing wall, floor, loft or hot water insulation, as long as it is fitted to a finished property and is not still under construction.


Other direct costs of letting the property such as phone calls, stationery and the costs of travelling between different properties for the purposes of the rental business are also claimable expenses.


Asset Finance appoints new head of portfolio risk

Investec Asset Finance appoints new head of portfolio risk

Investec Asset Finance Plc (IAF) has appointed Jane Mantell as head of portfolio risk with immediate effect. Mantell’s remit will include the IAF portfolio, as well as the portfolio from the newly acquired commercial and consumer motor finance brokerage, Mann Island Finance Limited. In addition to all aspects of business intelligence, she will also be responsible for establishing a model-based framework for decision-making, capital and provisioning.

In 2007, she joined consultancy firm Insight Plus, where her financial clients included Lloyds Banking Group, Kensington Mortgages, Barclays, Northern Rock, Close Brothers Asset Finance and Lombard. Before that, she spent nine years with Foxreed Consulting.

Mantell’s appointment follows her involvement in assisting with the Investec Credit Risk Team on a consultancy basis, supporting them in recently winning the ‘Credit Risk Team of the Year’ at the 2014 Credit Today Awards.

Andy Higgins, head of credit at Investec Asset Finance, said: “We are delighted that Jane has joined the team. She has already helped to ensure we have an award winning Credit Risk Team and her industry experience and expertise will be invaluable in helping the team embed business intelligence in everything we do and move from strength to strength.”

Mantell added: “I’m pleased to be joining Investec Asset Finance on a permanent basis at such an exciting time. I’ve already worked closely with the team and am looking forward to continuing to deliver progressive credit risk solutions in the future.”

[Credit Today]

Asset finance drives SME lending

Asset finance drives SME lending to pre-crash levels

Leasing and asset finance are among the biggest drives of growth in the sector as small firms seek alternatives to traditional bank loans, figures from the National Association of Commercial Finance Brokers (NACFB) show.

A combination of caution from banks, new capital rules making it expensive to lend to SMEs, and firms’ own reluctance to borrow has driven down borrowing levels. But loans secured on assets, leases, invoice finance and vehicle finance have all shot up in the last year.

Brokers with the NACFB arranged more than £1bn of finance for small firms in May, its highest level since the crisis struck. The biggest component was asset finance and leasing, at £230m and up 19.8 per cent on the year. Commercial mortgages were next, raising £225m, up 25.7 per cent on May 2013. And buy to let lending was next at £200m, down from £203m in the same month a year ago.

Growth in Asset Finance

Sharp growth in business use of asset finance

Use of asset based finance by the UK’s biggest businesses has grown by 16 per cent in the past year, from £4.4 billion to £5.1 billion, says the Asset Based Finance Association (ABFA).

ABFA says that this is more than a fivefold increase on the £1 billion in asset based finance provided to big businesses ten years ago, as asset based finance becomes a mainstream method of funding for large businesses.

Asset based finance includes invoice finance, in which businesses secure funding against their unpaid invoices, and asset based lending, in which businesses can raise money secured against a range of other assets they own, including stock, property and machinery.

At the end of March 2014, 315 big businesses in the UK and Ireland were using asset based finance, compared with 277 a year ago, and just 81 in 2004.

Jeff Longhurst, chief executive of ABFA, said: “We’ve entered a new era for business funding, where asset based finance is an everyday part of the commercial finance toolkit for businesses of all sizes.”

“Financing tools like these have already been commonplace in the United States for a long time, and have played a key role in funding the recovery for a lot of businesses in sectors like manufacturing. We’re now seeing big British businesses following their lead, and using asset based lending as a vital part of their growth plans.”

“There are general concerns about the availability of finance for businesses and the consequences this could have for the recovery.  The asset based finance market in contrast – while it has grown sharply-still has unused capacity, and providers are actively looking to grow their lending books.”

[Fleet News]


UK Manufacturing continues to flourish

UK manufacturing sector strengthens in June

Activity in the UK manufacturing sector grew at the fastest pace for seven months in June, a closely-watched survey has suggested.

The latest Markit/CIPS purchasing managers’ index (PMI) for the sector was 57.5, up from 57.0 in May. A reading above 50 indicates that the sector is expanding. Markit said the sector continued to “flourish”, with jobs being created at the fastest pace for more than three years. The survey results add to signs that the UK’s economic recovery is becoming more balanced.

The figure reflects one of the sector’s best spells of output and new order growth in the 22-year history of the survey and is the second-highest reading in 40 months, bettered only during this period by November’s 57.8.

The CIPS survey has now signalled expansion for the UK manufacturing industry for the past 16 months, with the June performance rounding off the sector’s best quarter since the start of 2011 and one of the best in the last two decades.

CIPS said strong domestic demand boosted new business sales, while export orders also edged higher despite the strength of the pound.

The latest official GDP figures, released on Friday, confirmed that the economy grew by 0.8% in the first quarter of the year and recorded the fastest expansion in business investment in two years.

Manufacturing employment also rose for the fourteenth successive month in June, with rising job numbers seen across all sectors and led by small and medium sized businesses.

Strong quarter

While the PMI survey indicated that manufacturing output saw a slight slowdown in the rate of growth last month, it said output had now increased for 16 months in a row. In addition, new orders grew at the fastest pace since November last year.

“UK manufacturing continued to flourish in June, rounding off one of the best quarters for the sector over the past two decades,” said Rob Dobson, senior economist at Markit.

“With levels of production surging higher, and order books swollen by a further upswing in demand from both domestic and overseas clients, job creation accelerated to its highest for over three years.”

David Tinsley, UK economist at BNP Paribas, said: “Manufacturing is growing strongly, and work flows suggest this has legs.

“This supports our view that UK GDP accelerated in Q2. As this news flow is absorbed further, rate hike expectations for the first hike in Q4 this year should harden.”

[BBC News + Belfast Telegraph]