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Coronavirus strikes at heart of British banking system

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coronavirus strikes at heart of british banking system

The coronavirus struck at the heart of the British banking system yesterday as it wreaked havoc on the finances of two of the country’s biggest lenders. 

In a grim economic sign, Barclays has earmarked £3.7billion so far this year to cover the cost of loans to households and businesses turning sour, up £1.6billion since March. 

And Spanish giant Santander Group wrote down the value of its UK arm by £5.4billion as profits dwindled. 

Challenging times: Santander executive chairman Ana Botin

Challenging times: Santander executive chairman Ana Botin

Challenging times: Santander executive chairman Ana Botin

Santander UK was created through the acquisitions of Abbey National, Alliance & Leicester and Bradford & Bingley but its value has been slashed by 90 per cent over the past year. 

The latest writedown contributed to a £10billion second-quarter loss at the Spanish parent. It was the first loss in its 163-year history. Santander UK also set aside an extra £211m to cover the cost of loans turning sour, taking total provisions to £376m, amid fears households and businesses will default on their debts. 

The carnage is expected to be followed by similar moves at Lloyds today and Natwest tomorrow as banks feel the full force of the coronavirus crisis. 

US banks have also set aside huge sums, thought to be the biggest since the financial crisis. The UK economy has shrunk by about one quarter since the pandemic began and Barclays boss Jes Staley said it was preparing for the rest of 2020 to be ‘challenging’ as well. 

Profits could suffer well into 2021 because of the grim outlook for jobs and low interest rates. 

However, Barclays unveiled profits of £1.3billion for the first half thanks to its investment banking arm, where income jumped 31 per cent higher to £6.9billion. 

The last remaining investment arm at a major British lender, it had been under siege from activist investor Edward Bramson, who said it should be axed. 

But Staley fought Bramson off and the unit was yesterday praised for helping to keep Barclays in the black during the first six months of this year. 

Staley said: ‘This has been a period focused on supporting our customers, clients and the UK economy through the pandemic, providing the people and businesses we serve with a bridge to recovery in every way we can. 

‘While the remainder of 2020 will be challenging, our diversified model means we can remain financially resilient and continue to support our customers and clients.’ 

Santander UK said its bad loan provisions rose from £165m in March to £376m on June 30, ‘largely due to Covid-19’. Firsthalf profits fell from £575m to £147m, as Santander Group took a giant £11.4bn accounting writeoff on the value of businesses it had taken over in the past. 

At group level, Santander has also put aside £6.4billion for bad loans, up from £3.5billion in March. 

But the bank is still promising a dividend to its shareholders, around 1.2m of which are in the UK.

‘V-SHAPED RECOVERY IS IN STORE FOR UK’ 

Santander’s finance chief has lifted hopes for the UK’s economic recovery, saying he was ‘quite confident’ it will be V-shaped. 

Jose Garcia Cantera said he has been encouraged by data from credit cards, business loans and mortgages showing that activity is bouncing back. 

His comments are notably more upbeat than those of other top finance figures, with Bank of England Governor Andrew Bailey among those to warn there is still great uncertainty ahead. 

But Cantera told the Mail: ‘I am quite confident. There is a lot of concern still but from the data we are gathering and activity we are seeing in the bank, the shape of the recovery we are seeing so far is clearly V-shaped. 

‘Obviously if there is another lockdown then this would not be the case. In the UK in particular… the activity is very strong. 

‘We had a few weeks that were really weak in March and in April but since then, activity has recovered quite significantly.’ 

Elsewhere, the Bank of England showed mortgage lending bounced back after a record low in May. Approvals rose to 40,010 in June from 9,300 in May. In February, there were 73,700. 

Meanwhile, households borrowed an extra £1.8billion in loans in June, and UK households and businesses strengthened their financial holdings by £16billion. 

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MARKET REPORT: AA slams into reverse as takeover talks breakdown

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market report aa slams into reverse as takeover talks breakdown

The AA skidded into the red after two potential suitors pulled out of the race to buy the breakdown group.

The debt-laden company revealed in August it had been approached by three potential bidders to take it private – much to the market’s delight.

Private equity groups Platinum Equity, Warburg Pincus, and Towerbrook Capital Partners working with the European arm of Centerbridge Partners were all circling the company, it said.

Non-runner: Private equity groups Platinum Equity and Centerbridge Partners have pulled out of the race to buy debt-laden breakdown company the AA

Non-runner: Private equity groups Platinum Equity and Centerbridge Partners have pulled out of the race to buy debt-laden breakdown company the AA

Non-runner: Private equity groups Platinum Equity and Centerbridge Partners have pulled out of the race to buy debt-laden breakdown company the AA 

But the talks stalled and a deadline at the start of this month was extended to September 29.

With just days to go, Platinum Equity and Centerbridge have withdrawn. Platinum said it was by ‘mutual agreement’, though it has reserved its right to return to the negotiating table under certain conditions.

Centerbridge said that Towerbridge, previously its partner in a joint bid, was still mulling a separate approach.

The AA had been on sounder footing at the start of this year, stemming a long-running customer exodus to cheaper rivals.

It is banking on customers wanting to pay more for a tech-savvy service that can diagnose problems, predict breakdowns and tell patrols where a car is when trouble strikes.

Stock Watch – Loop Up

33543774 8765217 image a 10 1600893521388

33543774 8765217 image a 10 1600893521388

The rapid shift to home working sent revenues at conference call service provider Loop Up 43 per cent higher to £32million in the first half.

Its services were used for 617million minutes – up 58 per cent on the same period last year – and held 3,596 virtual events. 

Customers, who include Travelex and Planet Hollywood, can also now make calls via Microsoft Teams.

Shares in the group, which swung to a £7.5million profit from a £478,000 loss, rose 8.2 per cent, or 18p, to 238p.  

This wouldn’t be its first brush with private equity, with it being privately controlled by CVC Capital Partners and Permira before it refloated on the stock market back in 2014.

But whether it is about to be brought back into the private equity stable remains to be seen. Shares fell 17.1 per cent, or 5.8p, to 28.2p. Both of the London Stock Exchange’s major indexes rose by more than 1 per cent.

The FTSE 100 rose 1.2 per cent, or 69.80 points, to 5899.26, while the FTSE 250 climbed 1.02 per cent, or 171.33 points, to 16,992.99.

The mid-cap index saw some of the day’s biggest rallies.

Upper Crust-owner SSP Group surged 12.3 per cent, or 22.3p, to 203p as investors took solace in a set of figures that were not as bad as they had expected.

Current weekly sales are 76 per cent below last year, an improvement from drops of 95 per cent in April and May. 

And its business in continental Europe has been performing better – sales are down 66 per cent there. The fact it has outlets in 30 countries will help it recover.

But SSP was outdone by Diploma, which yesterday advanced by an astonishing 26.9 per cent, or 461p, to 2172p after it raised £194million to help it take over a US wire and cable distributor.

Diploma is paying £357million for Windy City Wire Cable & Technology Products, which it hopes will help it to gain a bigger foothold in the US. 

Embattled cinema chain Cineworld was also close to the top of the mid-cap leaderboard, up 9.9 per cent, or 4.37p, to 48.52p ahead of half-year results out today.

Over on AIM, recruiter Staffline (up 8.2 per cent, or 2.03p, to 26.7p) appointed non-executive director Albert Ellis to be chief executive from October 1.

This will free executive chairman Ian Lawson, who will move to a non-executive chairman role on December 31.

It said there was an ‘unprecedented surge’ in demand for staff in supermarkets and elsewhere in the supply chain during lockdown. But its loss has widened from £12.3million in the first six months of 2019 to £47.7million.

And the children’s live events and entertainment group Live Company advanced 6.3 per cent, or 0.5p, to 8.5p, after it signed a deal with the White Rose shopping centre in Leeds to showcase a themed trail of Paddington bear models, which are made out of Lego bricks, over Christmas.

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JP Morgan to move £183bn from UK to Frankfurt in No Deal Brexit blow

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jp morgan to move 183bn from uk to frankfurt in no deal brexit blow
Pessimistic: JP Morgan Boss Jamie Dimon

Pessimistic: JP Morgan Boss Jamie Dimon

Pessimistic: JP Morgan Boss Jamie Dimon

Banking giant JP Morgan is shifting £183billion out of the UK to Frankfurt as it braces for a No Deal Brexit.

In a vote of no confidence over Prime Minister Boris Johnson’s ability to agree a financial services trade deal with the EU, it is transferring assets to bulk up operations on the continent.

This will allow the US bank to keep trading with European clients if the UK does not agree ‘passporting rights’ with the EU by the end of the year. JP Morgan, America’s biggest bank, has also told around 200 staff in London that they may have to move to another European financial hub.

The bank declined to comment, although it is understood that the UK will remain its biggest location in Europe for the foreseeable future.

Currently, the EU financial services passport allows UK banks and firms to do business with their European counterparts. 

But as the end of the UK’s Brexit transition period draws ever closer, financial services firms are increasingly worried that Johnson will not thrash out a deal with the EU to retain passporting rights.

Jamie Dimon, JP Morgan’s long-standing chief executive, has been consistently pessimistic about the UK’s prospects post-Brexit.

Last year he said that a No Deal Brexit would be ‘a disaster for Great Britain’. Speaking at the Economic Club of New York, he added: ‘The Brits were dealt a bad hand and they played it badly.’

But Tory MP Andrew Bridgen raised an eyebrow at JP Morgan’s decision to boost its presence in Germany.

He said: ‘If they think Frankfurt is a better place for their business than London, the centre of the financial markets, that’s their corporate decision.We can’t allow merchant banks to subvert a democratic decision to leave the EU.’

JP Morgan helped to fund the Remain campaign, Britain Stronger in Europe, hinting in 2016 that it could quit the UK if Brexit happened.

And when Dimon shared a stage in Bournemouth in 2016 with the then-Chancellor George Osborne, he said leaving the EU would be a ‘terrible deal for the UK economy’.

In the run-up to the 2016 referendum, Dimon said the bank would need to cut around 4,000 jobs in the UK if the public voted to leave the EU.

He later revised this down to between 500 and 1,000.

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Hornby sales take off during lockdown as families turn to hobbies

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hornby sales take off during lockdown as families turn to hobbies

Hornby enjoyed a lockdown boost, as housebound families turned to hobbies to entertain themselves.

The firm, famous for its model trains, said sales between April and August had been higher than the previous year and exceeded its expectations.

As the company held its annual shareholder meeting yesterday, Hornby, which also owns brands including Airfix and Scalextric, confirmed its operations are ‘nearly back to normal’ following lockdown.

The few: Demand for models during lockdown was so high that Hornby ran out of Airfix Spitfires (pictured) ¿ though they are now back in stock

The few: Demand for models during lockdown was so high that Hornby ran out of Airfix Spitfires (pictured) ¿ though they are now back in stock

The few: Demand for models during lockdown was so high that Hornby ran out of Airfix Spitfires (pictured) – though they are now back in stock

Chief executive Lyndon Davies said: ‘We’ve seen sales increase across all brands and in all markets. In lockdown we could see more things like Airfix selling. Everyone stuck at home was twiddling their thumbs.’

Hornby even ran out of Airfix Spitfires – though they are now back in stock. 

Davies said adults had sought comfort in toys of their childhood. He said: ‘Parents and grandparents know names like Airfix and Hornby, so that’s what they’ve turned to.’ 

His eldest daughter is a nurse, inspiring him to sell ‘Captain Tom’ locomotives and give the proceeds to the NHS. It raised £140,000.

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