Bitcoin proves volatile on the markets

It’s been a busy week for bitcoin – even by bitcoin’s standards. On Wednesday, it reached its highest level at $11,434, before nosediving a huge 21% to $9,009 just six hours later. The last time the bull market saw such extremes was in 2008 after the Lehman Brothers collapse. Back then US stocks took 24 days to slide the 20% they needed to cross back into bear market terrain.

This week, investors looked on in amazement as the cryptocurrency moved from bull to bear to bull again in record-breaking time. According to the Financial Times, there were reports of outages and slow trading at some of the major exchanges as the price vacillated so violently.

When at its highest point, bitcoin had risen more than 12-fold for the year – the equivalent of more than 1,100%. At the start of 2017, the cost of buying one bitcoin had been around $1,000.

Bitcoin’s recent volatility has led to parallels being made with previous booms – everything from the 17th century passion for tulips to the dotcom bubble (and crash) in the late nineties.

Rich Ross, Evercore’s head of technical analysis explained: “We’re watching history. It is a classic bubble, and bubbles go up a lot. It is a mania and the best thing about it is you can’t value it, like trading technology stocks in the nineties.”

Many predict that bitcoin will soon move from the side-lines to become a mainstream currency. This week’s whipsaw trading hasn’t deterred traders looking to make a quick profit.

According to David Drake, chairman at LDJ Capital, a multi-family office, bitcoin will keep going up. He estimates the cryptocurrency could be as much s $20,000 by the end of next year.

Post-Brexit hubs for Goldman Sachs in Frankfurt and Paris

Goldman Sachs is planning to have two hubs on the European continent following Brexit, according to Reuters. The banking giant will establish bases in Frankfurt and Paris, with London staff free to decide where they wish to relocate

Speaking to French newspaper Le Figaro, chief executive Lloyd Blankfein said: “We will have more employees on the continent [post-Brexit]. Some, if they want to, would come from London, we will hire others.

“But we won’t have a single hub, but two – Frankfurt and Paris… Brexit pushes us to decentralise our activities. In the end, it is the people who will largely decide where they prefer to live.”

At present, most of Goldman Sachs’ European activities are carried out from London, where 6,000 employees are based. Once Britain leaves the EU, the bank will need to ensure stability of services for clients remaining in the EU’s single market.

The chief executive said it was almost time for the bank to make key decisions and he hoped negotiators in the Brexit talks would reach agreement soon on rules for a transition period ahead of the final exit in 2019.

To attract banks, France has been relaxing regulations including employment laws under the leadership of President Emmanuel Macron.

HSBC agrees to settle French tax evasion case for €300m

HSBC is to pay €300m (£266m) to French authorities in order to settle a long-running investigation into tax evasion by French customers of the bank, according to BBC News.

The allegation from the French financial prosecutor was that HSBC’s Swiss private banking unit assisted clients who wished to evade tax. The bank has acknowledged to ‘control weaknesses’ and said it was taking steps to address them.

Payment of the fine will conclude action against HSBC but it is still possible that two former legal directors could face further legal claims.

The investigation started in 2014 following the leak of data by a former IT employee. The records detailed transactions involving thousands of French customers. The French prosecutor claimed that €1.6tn of assets were involved in tax evasion schemes.

The settlement is the first deal to be struck under French rules introduced in 2016 which allow banks to settle claims without any finding of guilt. HSBC said it was glad to resolve “this legacy investigation which relates to conduct that took place many years ago.”

Big banks lease Frankfurt offices as Brexit contingency

Speculation that London could lose out on its status as a global financial hub post-Brexit has taken a tangible turn as several major banks have agreed leases in the city’s competitor hub, Frankfurt.

According to Reuters, Goldman Sachs has entered a rental agreement for 10,000 square metres of offices in the new Marienturm building in Frankfurt. Goldman Sachs will occupy top eight floors of the new 37-story skyscraper, providing space for 1,000 staff.

At present, Goldman Sachs has around 200 staff in the German city. It is expected to increase activities such as trading, investment banking and asset management in what a spokesman called a “Brexit contingency plan.”

Another financial giant, Morgan Stanley has also signed a lease for offices in a tower currently under construction. The Omniturm is expected to lease enough space for Morgan Stanley to double its current Frankfurt staff count of 200.

JP Morgan’s Frankfurt presence looks likely to be increased by a further two floors of the tower it currently occupies with a staff of 450. Citi has also said it will add 150 to its Frankfurt roster.

The British government has proposed a transition deal to smooth the way to leaving the European Union, but progress in negotiations has been slow. A Bank of England official recently said that unless an agreement was in place by Christmas, many firms would begin to transfer jobs abroad.

Legal & General invests £40m into employee loan fintech startup

Legal & General has invested £40m into a fintech startup that partners with employers to offer loans to workers, according to Business Insider UK.

SalaryFinance was started by Dan Cobley, former MD of Google in the UK. The startup enables staff to apply for loans of up to 20% of their annual salary with interest rates from 3.9% APR. The mechanism can also be used to set up automatic savings accounts.

The startup calls itself a ‘financial wellbeing’ business, offering tools to manage money and educational opportunities as well as loans. It is used by employers including Metro Bank, Hays recruitment and Hackney Council.

Bernie Hickman, CEO of Legal & General Insurance, said the investment was part of a new fintech arm of the business that “brings together the many benefits and strategic advantages that Legal & General enjoys with the fast pace, technology first, customer-centric approaches of successful startups, such as SalaryFinance.”

The £40m investment will enable the startup to fund expansion into the US market. Legal & General is following in the footsteps of other financial services companies experimenting with fintech, including Aviva.

The move comes after an announcement in September 2017 that Goldman Sachs would invest £100m into SalaryFinance’s rival Neyber, which also describes itself as a financial wellbeing business and offers loans secured against pay cheques.

Accountants to be edged out by robots, says DB CEO

Deutsche Bank chief executive John Cryan says work now done by qualified accountants could soon be carried out by robots.

Cryan told a Frankfurt gathering: “In our bank we have people doing work like robots. Tomorrow we will have robots behaving like people. It doesn’t matter if we as a bank will participate in these changes or not, it is going to happen.”

Deutsche Bank is currently undergoing a restructuring programme led by Cryan, who joined the bank in 2015. Deutsche Bank employs 100,000 people around the world.

Cryan joins other senior banking figures to predict the impact of automation on the profession. Andy Haldane, chief economist at the Bank of England, has said up to 15m jobs are at risk in Britain from the rise of the robot. The former chief executive of Barclays Antony Jenkins has described technology as “an unstoppable force” giving banking an “Uber moment” of disruption.

Automation could lead to better productivity, as accountants are freed from number-crunching to focus on more analytical roles that contribute to strategic direction. However, critics say that automation undermines the market by increasing unemployment, so there are fewer consumers able to buy the products made by robots.

Cryan also said that Frankfurt is set to receive a banking boost from Brexit. The banker said the German city has the regulatory capacity, law firms, consultants and airport capacity to take business from the City of London. Around 4,000 of Deutsche Bank’s 9,000 London-based staff are said to be preparing to move to the city after Brexit.

‘Business as usual’ for commercial and household lending in the UK

There has been little change in borrowing patterns among UK consumers and businesses since the EU referendum, according to figures released on Wednesday by the British Bankers’ Association (BBA).

The trade association for the UK banking sector said that the report for July, reflecting the period immediately after the vote to leave the European Union, shows that net mortgage borrowing and consumer credit annual growth were identical to the figures in June at 3% and 6% respectively.

Meanwhile, business borrowing picked up in July following a mild contraction in June, and household and business cash deposits continued to grow at a rate similar to that seen in the previous two months.

“The data does not currently suggest borrowing patterns have been significantly affected by the Brexit vote, but it is still early days. Many borrowing decisions will also have been taken before the referendum vote,” explained Rebecca Harding, chief economist at the BBA.

“We are also clearly still a nation of shoppers and the Brexit vote has done nothing to change the fact that we use credit cards for short-term purchases. Strong retail sales figures appear closely associated with strong consumer credit growth.”

In the business sector, the report shows that borrowing by non-financial companies increased by ?2.3bn in July after a small fall in June.

Harding noted that business borrowing is not following the same pattern as business confidence. The data shows a clear upward trend in business borrowing for the last few months, indicating that the decline in June was a blip, probably caused by pre-Brexit nervousness.

“All of this suggests that, for the UK borrower, whether commercial or household, it is business as usual for the time being” Harding concluded. “There is no panic exodus or lock down in borrowing but, as many of the decisions to borrow could well have been made before the Brexit vote, we really should look for longer term trends before we can draw any conclusions.”

RBS and and Standard Chartered struggle to pass Bank of England stress test

Seven of the UK’s largest financial service providers banks have been advised to set aside extra capital as a buffer against financial shock, following the latest stress testing by Britain’s central bank, the Bank of England, it was reported on Tuesday.

This is the second year running that the bank of England has carried out stress testing of major lenders in the UK, which measure whether they would survive economic problems. During the latest tests, it was assumed that oil had fallen to $38 per barrel and that the global economy had slumped. The hypothetical scenario also assumed a dramatic slowdown in the Chinese economy, prolonged deflation, a reduction in interest rates to zero and a huge increase in costs for fines and legal bills of £40bn. The test indicated that profits would fall more than they had done during the 2008 banking crisis, but capital cushions remained strong enough to withstand the downturn while increasing credit to the economy by 10%.

Royal Bank of Scotland and Standard Chartered were found to have the least capital strength, but as each bank had taken steps to raise capital, they were not required to put new measures in place. However, all seven banks were advised that the Bank of England is phasing in a new measure known as a “countercyclical capital buffer”, which requires financial service providers to ensure that extra capital is available that will allow more room in times of economic decline to absorb losses from bad loans and other problems.

Banks are required to allocate more money to protect against lending losses in the UK, but some of this will be brought in from other reserves that the banks already have. The regulator will advise banks when to fill the buffer, setting aside reserves during stable times in the economic cycle.

Bank of England Governor Mark Carney stated at a news conference: “We will not increase capital… the overall level of capital won’t increase in the system. Large capital raisings are off the agenda and banks largely have or have access to the reserves they need”.

UK government to sell remaining 12% stake in Lloyds

HM Treasury revealed on Monday that the UK government plans to divest the rest of its stake in Lloyds Banking Group, with the launch of a retail sale of Lloyds shares in spring 2016.

The government intends to fully exit from its Lloyds shareholding in the coming months and has said that at least GBP2bn of shares will be sold to retail investors as part of the divestment, with applications available online and by post.

Lloyds shares will be offered to members of the public, with a discount of 5% of the market price and a bonus share for every ten shares for those who hold their investment for more than a year. Priority will be given to those who apply for an investment of less than GBP1,000. The value of the bonus share incentive will be capped at GBP200 per investor. Also, military personnel and their spouses stationed overseas will be able to apply to buy the shares, where possible, which is in line with the government’s armed forces covenant that ensures that members of the armed forces should not face disadvantage in the provision of public services.

Proceeds from the sale of Lloyds shares are used to pay down the national debt.

According to the BBC news website, Chancellor George Osborne has described the sale as the biggest privatisation in the UK for more than 20 years.

Osborne was quoted as saying: “I don’t want all those shares to go to City institutions – I want them to go to members of the public”.

Lloyds was bailed out by the government at the height of the financial crisis in 2008, when the Treasury spent GBP20.5bn on a 43% stake in the banking group. Almost three-quarters of public funds used to rescue the bank have been recouped by the Treasury, which has sold the shares to institutional investors.

FCA plans deadline for PPI complaints

The Financial Conduct Authority (FCA), which is responsible for the conduct supervision of all UK regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA), announced on Friday that it plans to introduce a deadline for complaints about payment protection insurance (PPI).

Early this year, the FCA stated that it would be assessing whether there was a need for further intervention in PPI complaints handling generally, whereby consumers would need to make their PPI complaints or else lose their right to have them assessed by firms or by the Financial Ombudsman Service (the Ombudsman). 

Subject to consultation up to the end of 2015, a deadline would fall two years from the date the proposed rule comes into force. The FCA does not expect the ruling to become effective before spring 2016, therefore PPI consumers would have until at least spring 2018 to complain. This consultation will also set out plans for a proposed FCA-led communications campaign that will be designed to encourage consumers to complain in advance of that deadline, which will also include a proposed fee rule concerning the funding of the proposed communications campaign.

Following consultation, the FCA said it publish a paper before the end of the year, that will set out the full detail of these proposed rules and guidance; the evidence considered; reasons for the proposals; and an assessment of costs and benefits.

Since January this year, evidence has been gathered from firms, consumers through online surveys and discussion groups, as well as other stakeholders, regarding the PPI landscape and whether it is changing. An assessment has been carried out by the FCA as to whether the current approach is continuing to meet the objectives of securing appropriate protection for consumers and enhancing the integrity of the UK’s financial system.

According to the FCA, current complaints framework and its supporting supervisory work has resulted in compensation being paid to large numbers of consumers who were previously mis-sold PPI.

So far, more that GBP20bn redress has been paid to over 10 million consumers. But the FCA found that the large scale payment of redress has recently been accompanied by other trends such as a high and growing proportion of complaints are being made via claims management companies, with fee costs to the consumers who use them. Also a high and growing proportion of complaints relate to older sales (pre-2005 and even pre-2000), where the documentary evidence held by firms and consumers is likely to have significant gaps and recollections and oral evidence are becoming increasingly stale. In addition, there are a large number of complaints made that have turned out not to have involved a PPI sale.

The FCA said it considers that the introduction of a deadline and running a communications campaign would: prompt many consumers who want to complain, but have not yet done so, into action, resulting in them potentially getting redress sooner, and giving some of them the opportunity to pay off costly debt; and bring the PPI issue to an orderly conclusion, reducing uncertainty for firms about long-term PPI liabilities and helping rebuild public trust in the retail financial sector. Also, the FCA also considers that its intervention may encourage more consumers to complain directly to the firms, rather than using and paying claims management companies.