Sky News’ City Editor Mark Kleinman writes a weekly column for City A.M., this week on the budget, the latest on the Woodford fallout, and another bank tie-up
For a sanguine City of London, it’s the definition of delayed gratification. Jeremy Hunt’s spring Budget, unveiled yesterday, had precious little for the capital’s financial centre of genuine novelty – a lunchtime meal, if you like, dominated by lukewarm leftovers.
There was, for example, the chancellor’s declaration of his intention to proceed with a retail offering of NatWest Group shares, which ultimately ends up selling part of the taxpayer’s collective interest back to those individual taxpayers who can afford to participate.
Pension fund reforms forcing greater disclosure on the industry and imposing penalties on underperformers are broadly sensible, but are unlikely to address broader structural challenges and, indeed, are likely to encounter many of the same obstacles which have scuppered similar attempts in the past.
Then there was the commitment to establishing Pisces – the new intermittent trading venue that, according to the Budget documents, “will boost the pipeline of future IPOs in the UK”. It’s a worthy ambition, but not remotely guaranteed that private trading on the new venue will translate into public listings.
Finally, the well-trailed British ISA, which will be the subject of a Treasury consultation but which has already drawn opposition from fund platforms such as Hargreaves Lansdown and AJ Bell.
City executives seemed relatively comfortable yesterday with the lack of meat on the bones of Hunt’s speech. For one thing, they argue, it’s unlikely that a Labour government would have followed through more radical reforms that would take longer than six months to adopt – a firm indication, perhaps, of how likely a Conservative general election victory is being perceived in the financial services sector at the moment.
Equally, many bankers, asset managers and insurers were convinced by the Treasury’s message that more substantive changes affecting them will be announced at the Mansion House dinner in the summer.
At that point, measures to bolster the investability of Britain’s banks and to improve the coordination of financial watchdogs – with the specific objective of improving the UK’s economic competitiveness – are surefire bets to feature prominently.
It’s in nobody’s interest for Cov’s bid for Co-op to fail
It’s not quite being sent to Coventry in the traditional sense. As talks rumble on between the building society headquartered in the East Midlands city and the Co-operative Bank about a merger, the creation of a super-mutual in Britain’s financial services sector becomes ever-closer.
There is sound industrial logic underpinning a deal. The two businesses are complementary, and a merger would establish a financial services group in personal and business banking with £90bn in assets – still far smaller than the five biggest high street lenders, but more readily able to compete at scale.
The combined business would be similarly sized to Virgin Money, sending it through a £50bn assets threshold that the Bank of England uses to assess the capital that banks need to hold in reserve on their balance sheets.
It’s in nobody’s interest for this deal to fail. For regulators, pragmatism should be the order of the day.
Herein lies one of the key challenges to consummating a deal, according to industry observers. The Coventry’s ability to finance the Co-operative Bank acquisition will depend in part on the glide-path that regulators insist on from a capital adequacy perspective. The shorter the deadline for the Coventry to conclude that process, the less it can afford to pay the Co-operative Bank’s shareholders for the business.
To that end, as I reported on Sky News yesterday, the Coventry has now brought in bankers from JP Morgan to advise its board on the deal and its implications for the mutual’s capital structure.
Sources close to the process say that the discussions are progressing constructively ahead of an initial exclusivity period expiring at the end of this month – but with that key issue of price as the looming elephant at the negotiating table.
While the Co-operative Bank’s management team has done an effective job of bringing stability to a company which has twice been on the brink of collapse in the last 11 years, it’s in nobody’s interest for this deal to fail. For regulators, pragmatism should be the order of the day.
Regulator needs to be transparent as it clears up Woodford mess
It has been years since Neil Woodford was in full view as one of the City’s most prominent fund managers, but the consequences of his firm’s failure continue to reverberate. Last month, it emerged that investors trapped in his funds are in line to receive their first compensation payouts in April. About time – it’s now five years since Woodford’s collapse, so soaring inflation during the intervening period has further decimated the value of customers’ holdings.
I also understand, though, that the Financial Conduct Authority, has quietly decided not to pursue an enforcement investigation against Hargreaves Lansdown in relation to the Woodford affair. The funds platform was hit by an investor lawsuit in the autumn of 2022, alleging that it recommended the Woodford Equity Income Fund to customers despite being aware of the liquidity issues faced by the fund manager.
Sources say the City watchdog notified Hargreaves Lansdown “relatively recently” that it was not pursuing its own case. After a week in which the FCA has said it intends to shed more light on the enforcement investigations it has underway, a public reference to this decision, which has been of enormous public interest, would have been in order.