Insurance companies risk being caught up in the regulatory crackdown caused by the rash of recent banking scandals, according to Richard Ward, chief executive of Lloyd’s of London. Mr Ward said insurers were struggling with the “fallout” from moves by regulators to put in place rules to prevent new scandals. “You have the Libor scandal, all the stuff with Standard [Chartered] in the US – that doesn’t help restore the image of financial services in the eyes of the public, the politicians and regulators,” Mr Ward told Reuters. He said: “We are always having to deal with the fallout of the actions of others and the regulators responding accordingly.” The banking industry has been hit by several scandals this year, including allegations that banks manipulated Libor, mis-sold complex interest rate derivatives to small businesses, and most recently over money laundering, The Telegraph reports.
Junk bond yields hit a fresh historic low as investors scrambled for higher returning assets ahead of a US Federal Reserve decision that could promise ultra-low interest rates for years to come. An index of high-yield corporate debt showed a yield of 6.48%, down from 8.35% at the start of this year. The inflows into junk bond funds that have been driving the buying spree look likely to set an annual record. Ed Marrinan, strategist at RBS Securities, said investors were expressing confidence that the Fed will ease monetary policy and that the German constitutional court will approve the European Stability Mechanism, the region’s permanent bailout fund, The Financial Times explains.
Glencore would dispose of Xstrata’s stake in platinum miner Lonmin if it can win over Qatari investors to its £23bn takeover. It came as Qatar, which fears an exodus of Xstrata’s top talent, said its support for the deal was by no means guaranteed. A senior figure familiar with Glencore’s plans said Xstrata, or its eventual owner, has a ‘big decision’ to make on Lonmin and should ‘assess carefully’ whether it was worth having a stake. ‘Nothing has come out of that mine for four or five weeks,’ the source added. Xstrata owns 25% of Lonmin (down 8p to 611p), which has been rocked by strike action and violence that has left 44 people dead. The value of the stake has fallen by £65m amid the unrest, while Lonmin has warned it may tap shareholders in a £650m rights issue that would further devalue Xstrata’s holding, The Daily Mail says.
A panel of European officials would be given sweeping new powers to police the financial sector across the continent but also in the City of London. They would be given “full decision making powers” to impose EU law and to arbitrate disputes between Britain and the Eurozone over the risks posed by British banks, according to the proposals being tabled on Wednesday at the European Commission. Decisions taken by the powerful body would be automatically binding unless Britain was able to win the unlikely backing of a majority and overturn them. Rulings by the panel could create huge costs for the British government and banks if they were ordered to bail-out a struggling institution, contribute to cross-border bail-out funds, or allow the EU to rule over breaches of European law, The Telegraph writes.
Job losses at the Peugeot Citröen group are unavoidable if it is to safeguard its future, according to a report for the French Government. Commissioned by the Industry Ministry, the report accepts that an assembly line closure is “inevitable”, but it criticises the company for deciding to close a plant near Paris without considering other options, including the closure of its Madrid plant. Two months ago, President Hollande branded the plan to cut 8,000 jobs by shutting the plant at Aulnay and scaling back another in Rennes as “not acceptable in its current form”. Union officials who met with Arnaud Montebourg, the Industry Minister, yesterday said that he had acknowledged the company was “facing severe difficulties and needed to restructure”. The report, compiled by the engineer Emmanuel Sartorius, said that it had been too slow to extract cost savings between its two core brands and had dithered over the forging of international alliances, leaving it overly reliant on the European market, The Times says.
Nick Buckles yesterday staked his future at G4S on the findings of an independent probe into the firm’s Olympic failures. The chief executive could draw his 28-year career with the group to a close if he is found to be accountable for the company’s failure to provide 10,000 guards for the Olympics. It came as Games organisers Locog laid out the firm’s catalogue of failings before MPs. On its worst day, G4S provided less than two thirds of the required staff numbers, Locog’s chief executive Paul Deighton told the Home Affairs Select Committee. During the Games more than 60% of venues were left with a 15% deficit in guard numbers – a level viewed by organisers as critical, he added. Appearing before the same group of MPs yesterday, Buckles admitted the buck stopped with him, The Daily Mail reports.
Building societies are expected to assume the role of regional banks as they capitalise on their greater reputation among the public and small businesses, according to a report. KPMG’s 22nd annual Building Societies Database said almost half of the UK’s 47 financial mutuals had increased their profit in the year to April 2012, and that they would benefit further from the end of free banking. Catherine Burnet, head of financial services at KPMG in Scotland, said that although the sector was still subject to potential mergers, it was the building societies’ “time to shine”. She said: “By 2020 we could see building societies fulfilling a new role as regional banks, capitalising on their attractiveness to smaller businesses and to customers, according to The Scotsman.