British banks’ torrid summer continues

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Today’s top stories

• The US Federal Reserve announces its decision on interest rates at 2pm ET/7pm London today. Check back here for details and reaction.

• Anthropic, Google, Microsoft and OpenAI launched the Frontier Model Forum, a new group to research increasingly powerful AI and establish best practice for controlling it as regulatory scrutiny tightens.

• British billionaire Joe Lewis was charged in the US with insider trading. The owner of Tottenham Hotspur football club was accused of tipping off associates including employees on his superyacht.

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Good evening.

Alison Rose’s departure as NatWest chief overnight is the latest crisis to hit the UK banking sector in a torrid summer of criticism over “de-banking” and accusations of profiteering.

Rose was forced to quit the taxpayer-backed lender after admitting to the inaccurate briefing of a BBC journalist about the closure of the bank account belonging to Nigel Farage, former UK Independence party leader and Brexit linchpin.

Farage had produced evidence that Coutts, NatWest’s private banking business, had shut the account partly because of his political views. Shareholders are now putting pressure on chair Howard Davies to follow suit.

The Treasury had been quick to act when the affair hit the headlines, summoning bank chiefs to discuss the issues, culminating with today’s agreement by the banks to overhaul their handling of account closures and commit to upholding clients’ “freedom of expression”. (You can read more on “politically exposed” people and their banking relationships in this explainer.)

The Farage affair has also shone a light on the wider problem of the unbanked. More than a million adults in the UK are still without an account, with the young, ethnic minorities, gig workers and those living in poorer areas disproportionately affected. 

The row comes hot on the heels of criticism from Bank of England governor Andrew Bailey that banks needed to pass on higher interest rates to savers, echoing demands from chancellor Jeremy Hunt and the Financial Conduct Authority watchdog, and accusations from MPs that banks were profiteering.

Upcoming earnings statements are likely to be pored over for further evidence. Lloyds this morning increased the 2023 guidance on its net interest margin, the difference between what it charges on loans and the rate it pays on deposits, compared with previous figures released in February. Barclays reports tomorrow, followed by NatWest on Friday.

On a positive note, HSBC, which publishes results next Tuesday, today became the first of the UK’s big lenders to announce rate cuts on fixed-term mortgages in a rare sign of hope for homeowners facing a surge in borrowing costs. Brokers expect rivals to follow its lead in order to win business.

FT deputy editor Patrick Jenkins has argued that some of the accusations of profiteering were unfair and that undermining banks’ margins could erode their financial strength, weaken the City, and thus the industry’s ability to fuel the economy. A minimally profitable banking system is unlikely to prove convincingly robust, he says.

Moreover, an analysis by rating agency S&P suggests UK banks have handed more of the benefits of interest rate rises to savers than their counterparts in Europe and the US.

Nevertheless, as well as encouraging more competition, authorities need to do more to improve awareness of bank products and make it easier to switch into high-yielding accounts, says the FT’s editorial board. Broader access to financial education — the theme of the FT’s FLIC charitable campaign — should also be a top priority, it argues.

Need to know: UK and Europe economy

The UK is set to incur the highest debt interest costs in the developed world this year as persistently high inflation and an unusually large proportion of government bonds linked to price rises damage the public finances.

A new Big Read explains why UK businesses have such a poor record on productivity. Low investment and skills gaps are partly to blame, compounded by political instability. The country’s job support system is also in need of serious overhaul, according to a new report.

Wind farms and the fishing industry face a new/old danger in the Baltic Sea: unexploded mines from two world wars. About 300,000 tonnes of unexploded munitions are littering the seabed.

The latest FT film features the Ukrainian start-ups and IT workers who have been developing military tech and putting themselves on the front line defending their country from Russia.

Need to know: Global economy

The risk of a crash landing for the global economy has receded, the IMF’s chief economist told the FT, even as he warned that central banks’ efforts to restrain inflation would weigh heavily on growth. The IMF now expects expansion of 3 per cent this year following a stronger than expected first quarter. Some economists are more sceptical.

Markets welcomed the Chinese government’s latest moves to support the economy as Beijing flagged up problems with the highly indebted property sector and local governments, as well as lagging domestic demand. Details are scant but here’s what we know so far. The government separately said its diplomatic affairs were in an “orderly” state despite the disappearance and sudden removal from office of foreign minister Qin Gang.

In less than a decade, Mexico’s drug cartels have created a highly profitable business to feed US demand for fentanyl, the synthetic opioid. Interesting fact: all the fentanyl needed to supply the US for one year weighs just 5 tonnes and would easily fit into one lorry. That compares with about 125 tonnes for heroin and even more for cocaine.

Need to know: business

Microsoft and Alphabet, Google’s parent, reported greater resilience than expected in their core businesses in the second quarter, helping to underpin Big Tech’s recent share price gains as both companies cautioned about higher AI spending ahead. Snap warned of pressure on margins as it ploughs more investment into AI, while Spotify was hit by the cost of axing podcasts and jobs, slumping to a €302mn loss.

Apple, which reports results next week, has reignited enthusiasm in virtual and augmented reality start-ups with its Vision Pro headset. The company believes its “mixed reality” device will usher in a “new era” in “spatial computing” and have a similar impact to how the iPhone revolutionised mobile computing. Samsung released its latest bendable smartphones.

Nissan and Renault finalised a shake-up in their alliance in the face of China’s growing strength in electric vehicles. Stellantis, owner of Jeep and Peugeot, said it was preparing for China’s EV invasion and Hyundai was bullish on EV sales. JLR’s recovery was helped by sales of its high-end Range Rovers as it embarks on major EV investment to catch up with its rivals.

Shares in LVMH, owner of Louis Vuitton and Tiffany, fell after it reported a slowdown in the US luxury market. Sales in China however appear to be rebounding after the easing of pandemic restrictions.

Another key takeaway from this year’s crop of European company reports is the emphasis on politics, especially when it comes to Russia’s invasion of Ukraine, writes international business editor Peggy Hollinger.

Saudi football club Al Hilal has approached Qatar-owned Paris Saint-Germain with a €300mn bid to sign Kylian Mbappé, a record-breaking offer for the French forward. The approach from Al Hilal, which is owned by Saudi Arabia’s sovereign wealth fund, highlights Riyadh’s disruptive ambitions in sport.

The World of Work

“Workcations” — doing your job from a holiday destination — are gaining in popularity, especially among the young, with some companies offering their staff “work from anywhere” weeks. Both Americans and Britons named Italy as their preferred destination.

The Working It podcast discusses “imposter syndrome” and how self-doubt can be useful in the workplace.

UK pay growth since the start of the pandemic has been strongest for top earners in London, according to new analysis, marking the reversal of a trend which had seen the poorest areas of the country benefiting the most.

Some good news

Amid the devastation wrought by wildfires across Europe a glimmer of optimism comes in the shape of bison and rare horses. In a groundbreaking experiment in the Iberian peninsula, the endangered animals are playing a crucial role in clearing scrubland and vegetation that serve as fuel for the blazes.