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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Archegos losses hit $10bn; US house prices and consumer confidence surge; HSBC and BP beat forecasts – as it happened

888 7th Ave, a building that housed Archegos Capital is pictured in New York City
888 7th Ave, a building that housed Archegos Capital is pictured in New York City Photograph: Carlo Allegri/Reuters

Closing summary

Time to wrap up.

The total bill for the collapse of Archegos Capital has hit the $10bn mark, after Japanese bank Nomura revealed that the family office implosion would cost it $2.9bn.

The hit means Nomura posted its worst quarter since 2009, and ruined what would have been its best year ever.

UBS also added to the losses, revealing it took a $774m hit last quarter - surprising shareholders and analysts. Both banks pledged to improve their risk management procedures.

The US economy has continued to rebound strongly from the shock of the pandemic.

House prices are rising at their fastest pace in 15 years, up a sizzling 12% in the last 12 months, with low borrowing costs and supply shortages fuelling the market.

US consumer confidence has hit its highest level since the pandemic began.

In the UK, MPs have announced an inquiry into the steel industry, where thousands of jobs are at risk at Liberty Steel following the collapse of supply chain finance firm Greensill.

Two major FTSE 100 firms both beat profit expectations this morning. HSBC reported a 79% jump in earnings as the economic picture brightened, and oil giant BP posted its strongest earnings since the pandemic.

Airline regulators have rejected Heathrow’s attempt to raise prices to recoup £2.6bn lost during the pandemic. The CAA said the plan was “disproportionate and not in the interests of consumers”.

Waitrose is expanding a trial with Deliveroo, creating up to 400 jobs and letting millions more people order from their supermarkets.

Managed office space company IWG has reported unprecedented demand for its hybrid working products, as people try to balance home and office life.

Hotel operator Whitbread has predicted a jump in demand this summer, as people ‘staycation’ in the UK, after posting a £1bn loss last year.

TSB has announced plans for 44 pop-up branches, to replace some of the many branches being closed in the UK.

UK retailers have reported the biggest uptick in sales since 2018, as non-essential stores reopen. DIY, carpet and furniture stores were notably busy, but the clothing and footwear shops are more subdued.

Shares in Tesla have dropped 3% following its results last night, with analysts concerned that supply chain problems are eating into its profit margins (with earnings boosted by bitcoin trading in Q1).

But parcel delivery firm UPS has seen its shares surge 10% to a record high, after smashing forecasts as the pandemic drives demand for e-commerce sales.

Copper is nearing a record high, while drought fears are pushing up some US agricultural products like corn and coybeans.

Sweden’s Riksbank has left interest rates at record lows, warning that the pandemic is not over, although the economic picture is a little brighter.

The City of London is planning to create at least 1,500 new homes by repurposing offices and other buildings left empty because of the pandemic, as it adapts the capital’s financial district for the future following Covid-19.

Goodnight. GW

The FTSE 100 has closed for the day, down 18 points or 0.25% at 6944.

Banks nad a good day, led by HSBC after its forecast-beating results. But aeronautics manufacturer Rolls-Royce 4.5% and Whitbread lost 3.3%, while software maker Aveva closed 5.4% lower after announcings its CEO’s departure today.

The FTSE 100 by sector, April 27th 2021
The FTSE 100 by sector today Photograph: Refinitiv

Michale Hewson of CMC Markets points out that it wasn’t the most dramatic day in the markets:

It’s been a pretty lacklustre day for markets in Europe today, with the FTSE100 and DAX both drifting back on the back of a weaker Asia session, as concerns over events in India act as a drag on global recovery prospects.

There may also be some anxiety over recent sharp rises in commodity prices, which are now starting to bleed into the agriculture sector, as both corn and wheat prices surge to multi year highs, largely over supply concerns due to unseasonably dry weather in North and South Dakota.

Full story: Bank losses linked to Archegos top $10bn after latest results

Bank losses linked to the collapse of Archegos Capital Management have topped $10bn, after Nomura and UBS became the latest global banks to reveal the true impact of the hedge fund’s failure on their finances.

Some of the world’s largest investment banks have been left nursing billions of pounds worth of losses as a result of their exposure to Archegos, the personal hedge fund of the New York-based billionaire Bill Hwang.

The combined financial hit has now pushed past the $10bn mark, after Japanese lender Nomura revealed a $2.3bn hit from Archegos in its first quarter results, resulting in its largest quarterly loss since the 2008 financial crisis.

Nomura warned that it was likely to see further losses in the months ahead that would bring its total losses to at least $2.9bn. That is more than the $2bn hit forecasted by the lender last month and confirms Nomura as the second-hardest-hit lender following the hedge fund’s failure, behind Credit Suisse.

The Archegos debacle also ate into UBS earnings, with the Swiss lender forecasting a total $861m loss, having booked a $774m charge in the first three months of the year.

Neil Wilson, chief market analyst for Markets.com, says:

“This is not as large as the $5.5bn for Credit Suisse, but nevertheless shows how the fallout was wider than initially thought.”

US Consumer confidence jumps: What the experts say

The surge in US consumer confidence is another sign that America’s economic outlook is improving.

James Knightley of ING says the report is ‘really strong’:

Greg Daco of Oxford Economics says it shows ‘solid momentum’

Analyst Steven Rattner (former head of Barack Obama’s Auto Task Force) points out that consumer confidence has been rising on president Biden’s watch:

US consumer confidence jumps to pandemic high

US consumer confidence has hit its highest level since the pandemic began, as Covid-19 vaccinations and stimulus spending lift optimism.

The Conference Board says its consumer confidence index leapt to 121.7 this month, up from 109 in March.

That’s the highest level since February 2020, just before the pandemic hit the US, and much stronger than expected (economists expected a rise to 113).

MPs launch inquiry into UK steel

The Liberty Steel site in Rotherham, England.
The Liberty Steel site in Rotherham, England. Photograph: Christopher Furlong/Getty Images

Back in the UK, parliament’s BEIS Committee has launched an inquiry into Liberty Steel and the future of the steel industry in the UK.

It will examine the current challenges facing the steel industry and issues concerning the sector’s long-term viability -- such as the net zero target and the post-Brexit state aid regime.

Significantly, the inquiry will also probe the Government’s approach to supporting the steel industry, and the impact of the collapse of Greensill Capital on Liberty Steel, its customers and its workforce in the UK.

Darren Jones, chair of the Business, Energy and Industrial Strategy Committee, says:

“The collapse of Greensill Capital and subsequent financing issues affecting the GFG Alliance has put thousands of jobs at Liberty Steel in jeopardy.

As a Committee, we are keen to examine some of the immediate challenges facing the UK steel industry, including at Liberty Steel, and to consider questions around decarbonisation and the long-term viability of the sector. If we consider steel to be a foundation industry, what can the Government do regarding industrial policy to help build a financially and environmentally sustainable steel industry in the UK?

“This episode has also raised a catalogue of concerns relating to corporate governance, audit and supply-chain finance. As a Committee, we will want to examine whether reform is needed in these areas and, additionally, access to and use of tax-payers money, including Covid-related support, and whether adequate checks-and-balances were put in place in return for support from government.”

Liberty Steel is owned by Sanjeev Gupta, the steel magnate whose GFG Alliance borrowed billions from supply chain finance firm Greensill. This supply chain finance allows suppliers to receive early payment on their invoices, freeing up cashflow, although Greensill’s collapse has put the practice under scrutiny.

Last week, the opposition Labour party urged the government to step in to save Liberty Steel from an insolvency that could threaten thousands of supply chain jobs, if Gupta can’t find a new lender.

In March, the government rejected GFG’s plea for a £170m rescue loan, putting more pressure on the group.

The Sunday Times reported earlier this month that Liberty Steel raised cash from Greensill Capital by selling steel that it then planned to buy back itself, stoking concerns about how his stricken empire was funded.

Shares in Tesla have dropped 4% in early trading in New York, after its Q1 results were released last night.

Although Tesla beat expectations with a record profit of $438m, earnings were boosted by sales of sale of regulatory credits and profits on its bitcoin trading, as well as a jump in electric car sales:

Investors may be focusing on Tesla’s profit margins, which dropped in the quarter due to a decline in average selling prices (it sold fewer of its older, more profitable models) and the wider scramble for components such as computer chips.

Russ Mould, investment director at AJ Bell. says:

Tesla’s shares look like they are in for a bad day... with investors flabbergasted that cash generation is coming from the sale of regulatory credits and profit driven by trading bitcoin, rather than its principal activity of making and selling electric vehicles.

“It’s somewhat ironic that these results follow the news that Tesla CEO Elon Musk will host the comedy TV show Saturday Night Live. He likes to be in the spotlight and investors may soon ask if the vehicle interests are simply becoming a sideshow.”

Here’s more reaction:

Wall Street opens cautiously

Stocks have opened cautiously in New York, as the US Federal Reserve begins its two-day policy meeting.

With Wall Street at record highs, investors are a little edgy in case the Fed should sound at all hawkish about future interest rate move tomorrow (having repeatedly played down this issue before).

  • Dow Jones industrial average: down 59 points or 0.17% at 33,922 points
  • S&P 500: down 5 points or 0.15% at 4,181 points
  • Nasdaq: down 36 points or 0.25% at 14,102

John Hardy, head of FX Strategy, says Fed chair Jerome Powell is likely to give little away tomorrow:

The US dollar has declined recently to the brink of pivotal levels in a number of USD pairs, as the FOMC meeting rolls into view tomorrow, a meeting that is likely to see Powell and company at pains to providing as little guidance as possible as they have vowed to wait for outcomes before suggesting the time to unwind accommodation is nigh.

The surge in US house prices is being driven by lack of supply, says Odeta Kushi, deputy chief economist at real estate firm First American.

So although house price inflation is the highest since 2006 (before the subprime crisis broke), she argues prices aren’t in another bubble.

Mike Larson, senior analyst at Weiss Ratings, has a theory about house prices.

He argues that the jump in US house prices will make it harder for the US Federal Reserve to raise interest rates, as a rise in borrowing costs would risk puncturing asset prices and destabilise the markets:

Quite a chart, showing how it has become even harder to get onto the US property ladder since the pandemic:

Updated

US house prices surge 12%, biggest gain in 15 years

Just in: US house prices have surged at their fastest rate in 15 years.

House prices across America jumped by 12.0% year-on-year in February, up from 11.2% in January, according to the latest S&P CoreLogic Case-Shiller index.

Prices rose by 1.1% month-over-month in February alone, with tight supply, record low interest rates, and demand to move to larger homes (more suited to homeworking) following the pandemic all driving the market.

Craig Lazzara, managing director and global head of index investment strategy at S&P DJI, says it’s the fastest house price inflation recorded since 2006.

“The National Composite’s 12% gain is the highest recorded since February 2006, exactly 15 years ago, and lies comfortably in the top decile of historical performance.

February’s price gains in every city are above that city’s median level, and rank in the top quartile of all reports in 18 cities.

A narrower measure of house prices in 20 large US cities posted an 11.9% year-over-year gain in February, up from 11.1% in the previous month.

Phoenix, San Diego, and Seattle reported the highest year-over-year gains, the survey shows:

Phoenix led the way with a 17.4% year-over-year price increase, followed by San Diego with a 17.0% increase and Seattle with a 15.4% increase.

Nineteen of the 20 cities reported higher price increases in the year ending February 2021 versus the year ending January 2021.

Updated

Copper is heading towards a new alltime high today, driven by fears of supply shortages as the global recovery gathers pace.

Benchmark copper on the London Metal Exchange traded up 1.5% at $9,894 a tonne, Reuters reports, a gain of 27% this year, and close to the all-time high of $10,190 hit in February 2011.

Industrial action in Chile, a major copper supplier, in a clash over pensions has been cited as one factor pushing up copper. The weaker dollar has also nudged up commodity prices.

Plus, copper has a reputation as a gauge of economic health (earning its nickname of ‘Doctor Copper’ in the markets).

Full story: HSBC profits rise nearly 80% amid improving economic outlook

HSBC reported $5.8bn in first-quarter profit, a near-80% jump, as improving economic forecasts allowed the bank to release hundreds of millions of pounds of bad debt provisions made to cover potential defaults linked to the Covid crisis.

Executives said they were still cautious but feeling more optimistic than in February, partly owing to the success of vaccine rollouts in big markets including the UK.

It meant the bank was able to release $435m (£313m) of the $8.8bn it put aside to cover bad debts during 2020, when lenders worried that a wave of business and personal customers would fail to keep up with their loan payments.

The cash boost helped raise pretax profits by 79% to $5.8bn over the three months to March, compared with $3.2bn during the same period last year when the Covid crisis first started gathering pace in Asia and Europe.

While HSBC’s Asian operations accounted for approximately 60% of its earnings, all of its regions turned a profit. The lender’s ringfenced bank, HSBC UK, reported $1bn in pretax profits for the first quarter, more than the $246m for the whole of 2020....

UPS smashes forecasts amid e-commerce boom

A UPS driver delivers packages in Philadelphia yesterday
A UPS driver delivers packages in Philadelphia yesterday Photograph: Matt Rourke/AP

Parcel delivery giant UPS has posted a jump in revenues, as the pandemic continues to drive demand for home deliveries.

United Parcel Service’s revenues rose 27% year-on-year to $22.91bn in the last quarter, ahead of expectations of $20.49bn.

That shows that the boom in online shopping remains strong, with people ordering more goods while they’re working from home and some shops remained closed.

The WSJ has more details:

The company, like its rival FedEx Corp, has been handling a surge in e-commerce orders during the Covid-19 pandemic as customers shopped from home.

U.S. revenue rose 22% to $14.01 billion in the quarter, while international revenue rose 36% to $4.61 billion, led by Asia and Europe.

UPS shares have jumped over 7% in pre-market trading.

In the City, the FTSE 100 index of blue-chip shares is down 16 points or 0.25% at 6948 points.

HSBC (+3.3%) and BP (+2%) are the leading risers, after beating profit forecasts this morning.

Credit score operator Experian (+1.5%), Lloyds Bank (+0.9%) and online property portal Rightmove are also higher, reflecting hopes of a strong UK recovery this year.

But in the losers aisle, Whitbread are down 3.7%, while jet engine maker/servicer Rolls-Royce has dropped 3.5%, having rallied yesterday on hopes that vaccinated US tourists will be welcomed in the EU this summer.

Shares in industrial software developer Aveva are down 5%, after announcing the surprise departure of CEO Craig Hayman. He’s being replaced by a top executive from its majority shareholder, Schneider Electric.

The FTSE 100 index during 2021
The FTSE 100 index is up 7.5% this year, and hit its highest level since February 2020 earlier this month Photograph: Refinitiv

Here’s our full story on Whitbread’s results, and its hopes for a summer rebound.

In other banking news... TSB has announced it will launch 43 ‘pop-up’ bank services across Britain, having shuttered a swathe of branches.

These pop-ups will be based in buildings like town halls, libraries and community centres, and aimed at people who have to travel over 20 minutes to reach their nearest TSB branch.

Some of those customers are losing their local TSB branch after the company decided last September to close 164 branches, which will take its total down to 290 branches by the end of 2021.

TSB says these 43 pop-ups will be spread across the country with 22 in England, 19 in Scotland and two in Wales. Some have already started, offering banking services like taking payments and assistance with bereavement. More details here.

But as Reuters points out here, consumer groups have previously said pop-up operations from banks are better than nothing, but can’t fully replace a permanent branch.

Uk retailers report sharpest upturn since 2018

Back in the UK, retailers have reported the sharpest upturn in sales since the summer of 2018, as the lockdown was eased.

The CBI’s latest distributive trade survey found that retail sales volumes were viewed as good for the time of year in April, for the first time in 2021 and to the greatest extent since June 2018.

The survey of 124 businesses, including 60 retailers, also found that sales are expected to remain above seasonal norms in May as the reopening continues.

The CBI reports that Hardware & DIY and furniture & carpets stores saw sales significantly above seasonal norms, as the home improvement boom continues.

Grocers and non-store retailers also reported that sales were good for the time of the year.

But clothing and footwear store sales were still much lower than usual, even though non-essential shops reopened in England and Wales two weeks ago, and in Scotland yesterday (clearly demand for smart office wear and party clothes is still weak, given Covid-19 restrictions).

Annual growth in sales was strong, with volumes rising at the fastest pace since September 2018 in the year to April. But that’s partly due to the economic shock of the pandemic a year ago; retail sales slumped in the first lockdown.

UBS’s $774m loss from Archegos came as a surprise to shareholders and shows the risks in capital markets, as Reuters explains:

“I understand you’re disappointed. We are disappointed as well,” UBS Chief Executive Ralph Hamers told analysts on a call fielding queries over the loss, the extent of which had surprised investors.

UBS shares fell 3.0% in morning trade.

“(The Archegos loss) highlights the inherent risk in its capital markets activities and presents a setback against its (UBS’s) otherwise risk-averse culture,” Moody’s analyst Michael Rohr said in a note.

“The bank’s strong capital and liquidity remain key credit strengths safeguarding its financial profile and ratings.”

Nomura and UBS take global banks’ Archegos hit to $10bn

Today’s news from UBS and Nomura take global banks’ total losses related to the collapse of Bill Hwang’s Archegos Capital Management to around $10bn.

That’s the total of all the losses reported so far by both banks, plus Credit Suisse (who were worst hit) and Morgan Stanley, (plus a likely loss of $270m at Japan’s MUFG and a possible $90m loss at Mizuho).

The $10bn total includes the likely damage expected in the April-June quarter as remaining positions are wound up, as well as the many billions already lost.

It’s an astonishing trail of damage caused by a single, obscure family office which managed to take huge, leveraged bets on media and tech stocks, before imploding in March.

As Bloomberg explains:

The Japanese bank [Nomura] booked about 245.7 billion yen ($2.3 billion) of losses in the three months ended March 31, driving the bank to its biggest quarterly loss since 2009, and will take another hit of about 62 billion yen this fiscal year. UBS Group AG, which hadn’t previously signaled any Archegos impact, said it sees a combined hit of about $861 million through the second quarter.

The two banks are among the biggest losers from the debacle at Archegos, which collapsed when the firm built up highly leveraged positions on stocks and was unable to meet banks’ margin calls. Nomura is the second-most impacted lender after Credit Suisse Group AG reported a combined loss of about $5.5 billion.

UBS lies in fourth position, just behind Morgan Stanley, which also surprised investors and analysts with a $911 million hit earlier this month.

Updated

Archegos collapse pulls Nomura to worst loss since financial crisis

The head office of Nomura Securities in Tokyo, Japan
The head office of Nomura Securities in Tokyo, Japan Photograph: Toru Hanai/Reuters

The Archegos collapse has also pulled Japanese bank Nomura into its worst loss since the financial crisis over a decade ago.

Nomura, another of Archegos’s prime brokers, has reported that it lost $2.3bn through the family office’s collapse in the last quarter.

That left it nursing a loss of around $1.4bn for the quarter. Nomura had been on track for its best-ever year, before Bill Hwang’s Archegos Capital blew up when it couldn’t meet margin calls - triggering a massive fire sale of assets.

Nomura president and CEO Kentaro Okuda said the bank would strengthen its risk management (a point UBS also made today):

“We take the matter with the US client very seriously.

We remain committed to strengthening management and enhancing our risk management framework as we continue to build our operating platform to deliver consistent earnings across our global franchise.

Without Archegos, Nomura had enjoyed a good year, with retail client assets at a record high, and the strongest full year aset management pretax income since 2002.

But the pain may not be over, as Nomura also expects to book another $570m in charges related to Archegos this financial year, as it unwinds its remaining positions.

According to the Financial Times, Nomura’s prime brokerage head has been suspended:

Nomura said its total loss from the implosion of Archegos Capital would hit almost $2.9bn, as people close to the Japanese bank said it had indefinitely suspended its global head of prime brokerage operations.

The financial blow to the country’s biggest brokerage is considerably greater than the approximately $2bn loss that Nomura initially flagged when the debacle involving the highly leveraged family office first came to light in late March.

The losses from Bill Hwang’s Archegos, which Nomura has not officially named and refers to as “a US client”, drove the bank to its biggest quarterly loss since the 2008 global financial crisis. It has also prompted Nomura to make pledges that it would fortify its risk management systems.

Waitrose expands Deliveroo service, creating up to 400 jobs

A female Deliveroo cyclist riding with a package on her bike.

British supermarket Waitrose is expanding its Deliveroo service, creating up to 400 new jobs.

Waitrose says it has agreed a two-year deal with Deliveroo, following a trial. It will now expand the food delivery service to another 110 supermarkets, takng the total to 150 by the end of the summer.

That expansion will mean around 13 million people will be able to buy Waitrose food on Deliveroo, with between 750 to 1,000 products available.

Waitrose plans to hire up to 400 people to fulfil orders ready to be collected and delivered by Deliveroo.

The expanded range of products includes free-from, dairy alternatives, vegan ranges, flowers and gifts, plus steak dinners, profiteroles and Prosecco. Apparently, lemons and avocados are “consistently the most popular customer choices”, closely followed by bananas, blueberries and strawberries.

Shares in Deliveroo are up 2% this morning at 223p, away from their record lows, but still 40% below their float price last month.

Full story: BP’s quarterly profit hits $3.3bn as oil price rebounds

BP has reported its biggest quarterly profit since the Covid pandemic began, and will hand investors a $500m (£360m) cash windfall, as the global oil markets recover from the crisis.

The oil company reported a profit of $3.3bn for the first quarter, up sharply from a loss of $628m in the same period last year when oil prices began to slide in line with China’s economic slowdown.

BP’s quarterly profit figure is more than four times higher than in the last quarter of 2020, and has allowed the company to start a $500m scheme to buy back shares from its investors a year earlier than expected.

Bernard Looney, the BP chief executive, said the first quarter’s results demonstrate “what we mean by performing while transforming”.

The oil company generated more than $6.1bn in cash, almost six times as much as its operating cashflows in the first quarter of 2020 and enough to reduce its debt so it can begin buying back the shares it has paid to investors in lieu of dividends.

The cash boom is due to recovery in global oil prices, which fell to 21-year lows of less than $20 a barrel in April last year due to the abrupt halt in global travel and economic activity.

More here:

Italian business and consumer confidence rises

Over in Italy, business and consumer confidence has risen this month as the government relaxes its pandemic restrictions.

National statistics institute ISTAT’s manufacturing confidence index has risen to 105.4 in April, the highst since September 2018, and stronger than expected.

ISTAT’s composite business morale index also rose, to the highest level since February 2020, just before the country’s COVID-19 outbreak emerged.

Consumer confidence rose this month to 102.3 from 100.9 in March, with a rise in sentiment about the current economic conditions, and future prospects.

Prime minister Mario Draghi is easing Italy’s Covid-19 restrictions this week. More than half the country has been placed in ‘yellow zones’ where shops, cinemas and theatres can reopen, while bars and restaurants can serve customers at outside tables.

Draghi is also pushing a €248bn stimulus package of investments and reforms to boost Italy’s economy.

It will improve Italy’s transport infrastructure (including better links between the prosperous North and less-developed South), alongside investment in digitalisation, green technologies, training, and structural reforms to modernise the Italian bureaucracy.

But there is concern that Italy may be relaxing restrictions too soon, and could lead to a rise in Covid-19 cases.

Sweden’s central bank has left interest rates at their record low of zero, and warned that the Covid-19 pandemic is not over

The Riksbank also left its bond-buying stimulus programme unchanged today, and said Sweden’s economic outlook was ‘slightly’ better than in February.

It says:

Despite the spread of the coronavirus having increased again, the Swedish economy has developed relatively well, supported by extensive economic policy measures.

The economic outlook is slightly brighter now than it was in February, but the pandemic is not over, and inflationary pressures remain low.

The Riksbank adds that the global economy is “well on the way to recovery”, due in part to major fiscal and monetary policy support.

World trade and industrial production have rapidly rebounded from the severe falls last year, but parts of the service sectors are still weighed down by the restrictions

Earlier this month, Sweden reported Europe’s highest number of new coronavirus infections per head, with more patients in intensive care than at any time since the pandemic’s first wave.

The Scandinavian country, which has opted against strict lockdowns but gradually ratcheted up its still mostly voluntary restrictions, had a seven-day average of 625 new infections per million people (on 13 April), according to ourworldindata.org.

UBS reveals $774m hit from Archegos

Swiss bank UBS has revealed today that it incurred losses from the collapse of family office Archegos Capital last month.

In its latest financial results, UBS says that its investment bank incurred a $774m loss related to a default by a US-based client of its prime brokerage business (ie, Archegos).

That loss held back UBS’s profit growth in the last quarter.

That’s less than rival Credit Suisse, which took a SFr4.4bn charge on Archegos.

But it still came as a surprise to investors. As Bloomberg says, UBS had “remained quiet on the collapse of Bill Hwang’s family office for weeks”.

Chief executive Ralph Hamers said this morning that UBS is reviewing its risk management processes, to avoid a repeat.

“We are all clearly disappointed and are taking this very seriously.

A detailed review of our relevant risk management processes is under way and appropriate measures are being put in place to avoid such situations in the future.

This never impeded our ability to serve our clients.”

Overall, pre-tax profits grew 14% year-on-year to nearly $2.3bn.

The bank said it had fully unwound its exposure to Archegos, resulting in an overall reduction of $434m to its quarterly net profits.

Net profits also rose 14%, to $1.8bn.

Shares in UBS are down 1.8% this morning, as analysts digest the results:

Business journalist Christiaan Hetzner has more details:

Updated

Britain’s aviation regulator has rejected Heathrow’s bid to increase airport charges to recover £2.6bn lost during the coronavirus pandemic.

Civil Aviation Authority director Paul Smith described the plan as “disproportionate and not in the interests of consumers”.

Instead, the CAA will allow Heathrow to raise an extra £300m through higher charges as an interim adjustment, and will consider the issue as part of the airport’s next regulatory period which begins on January 1 next year.

Heathrow was seeking to lift its “regulatory asset base” to address the slump in flights since the pandemic. Passenger numbers fell 73% last year, to the lowest level since 1975.

IWG: 'unprecedented demand' for flexible working after most challenging quarter

Office space provided by IWG in Spaces Globe Park, Marlow.
An IWG office space at Spaces Globe Park, Marlow. Photograph: Iwg Plc/Reuters

IWG, which runs serviced offices, says demand for its flexible work products is running at “unprecedented” levels.

IWG suffered badly from the lockdown, with revenues slumping over 20% in the first quarter of 2021, year-on-year.

The owner of the Regus brand says the last three months were the ‘most challenging’ ever.

Q1 2020 represented the strongest start to a new financial year the Group had ever experienced. In contrast, Q1 2021 has been the trough of the COVID-19 impacted performance and the most challenging quarter ever for the Group.

But... it is also seeing a surge in demand from people loking to combine an office desk with home-working, following the boom in remote work in the last year.

We have seen an unprecedented demand for our flexible work products, which is a confirmation of the positive trend of continued demand for hybrid working.

IWG says it also experienced “a surge in demand” for its enterprise membership products - used by large businesses who need to provide access to multiple workspace locations for their teams.

IWG recently signed deals with Japanese telecoms group NTT and Standard Chartered bank, as companies adjust their working patterns following the pandemic.

Whitbread hopes for 'staycation' boost after £1bn loss

A Premier Inn logo is pictured outside one of the company’s hotels in Doncaster, northern England.
A Premier Inn hotel in Doncaster, northern England. Photograph: Paul Ellis/AFP/Getty Images

Hotel chain Whitbread is hoping for a so-called ‘staycation’ boom, after plunging deep into the red during the pandemic.

The Premier Inn owner has reported a pre-tax loss of just over £1bn in the last financial year (to 25th February).

Total sales across the group slumped by 71.1% year-on-year, with government lockdown restrictions forcing its hotels and restaurants to shut for months.

Whitbread, which also runs the Brewers Fayre, Beefeater and Bar + Block eateries, is now preparing for UK lockdown rules to be relaxed next month.

It says:

  • In the UK, currently over 92% of our hotels are open, and we are ready to welcome leisure guests back to our hotels from 17 May, alongside the full reopening of all of our restaurants
  • Strong demand is expected for ‘staycations’ in UK tourist destinations throughout the summer, with business and event-led leisure demand starting to gradually recover thereafter.

Despite this huge loss, Whitbread is still planning to invest £350m this year - around £235m in the UK and £115m in Germany.

CEO Alison Brittain says the last financial year was “one of the most challenging in our 279 year history”, adding that Premier Inn did manage to grow its market share in the UK.

Brittain anticipates strong demand from holidaymakers this summer:

The vaccination programme in the UK means we can look forward to the planned relaxation of Government restrictions as we move into Summer, with the first major milestone being the return of leisure guests to our hotels, and the full reopening of restaurants from 17 May.

We expect a significant bounce in leisure demand in our tourist locations during the summer, followed by a gradual recovery in business and event-driven leisure demand.

Yesterday it emerged that Brussels is yet to open discussions with the British government about mutually recognising vaccine passports (although talks with the US are at an advanced stage).

Of course, a ‘staycation’ shouldn’t be seen as a second-rate option, with so many excellent parts of the UK to explore (and frankly, going on holiday in the UK is Still A Holiday).

HSBC’s shares are more muted, though, rising just 0.25% at the open.

Shares in BP have jumped 2.7% in early trading, to the top of the FTSE 100, as traders react to its surge in profits in Q1.

Hargreaves Lansdown: vaccines and UK housing boom helps HSBC

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says:

‘’HSBC swallowed a bitter pill by setting aside $3 billion for bad loans provisions last year, but now the pandemic headache is easing it’s releasing £400 million of that cash.

The improved economic outlook, thanks to rapid vaccine rolls outs, helped by the crutch of government emergency support, is welcome relief for the bank, helping push up profits by 79%. Pre-tax profits came in at $5.78 billion, up from $3.21 billion a year ago.

HSBC UK was singled out for a particularly strong recovery with pre-tax profits of over $1 billion for the quarter, with expected credit losses staging a disappearing act, as a strong economic bounce back appears on the cards. Demand for mortgages in the UK as the house price boom continues was one of the drivers which helped push up lending over the quarter by $2 billion.

HSBC also points to strong demand for mortgages in both the UK (where the housing market has been booming) and Hong Kong:

Lending growth was in Wealth and Personal Banking, notably mortgages in the UK and Hong Kong, and in Commercial Banking in areas of strategic focus.

Looking ahead, HSBC says there is “a high degree of uncertainty”, as countries emerge from the pandemic at different speeds and as the support measures introduced by governments across the globe unwind.

It expect mid-single-digit percentage growth in customer lending during 2021, but cautions in its outlook statement that:

This growth remains highly dependent on the speed at which economies recover from the Covid-19 pandemic, together with the duration of various government support measures and restrictions.

Introduction: HSBC and BP results show outlook is brightening

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Two heavyweight companies, HSBC and BP, have beaten profit forecasts this morning as the global economic outlook brightens.

Banking giant HSBC posted a 79% rise in pre-tax profit of $5.78bn (£4.1bn) for the first quarter of 2021, up from $3.21bn a year ago and well ahead of forecasts.

All regions were profitable in the quarter, notably HSBC UK Bank, which reported pre-tax profits of over $1.0bn in the quarter.

HSBC says that while it faces “interest rate headwinds” (ie, borrowing costs at record lows), expected credit losses and other credit impairment charges (‘ECL’) fell.

CEO Noel Quinn says the economic outlook has ‘improved’, more than a year after the pandemic began.

“We had a good start to the year in support of our customers, while achieving materially enhanced returns for our shareholders. I am pleased with our revenue and cost performance, but particularly with our significantly lower expected credit losses.

Global Banking and Markets had a good quarter, and we saw solid business growth in strategic areas, including Asia Wealth and trade finance, and mortgages in Hong Kong and the UK. We also strengthened our lending pipelines in our retail and wholesale businesses.

Quinn added that its growth and transformation plans is proceeding well:

The economic outlook has improved, although uncertainties remain. We carry good momentum into the second quarter, while maintaining conservative positions on capital, funding, liquidity and credit.”

In another sign that conditions are improving, the bank released $400m of provisions that it had set aside for bad debts racked up during the pandemic, “particularly in the UK”, reflecting improved economic forecasts.

BP has also swelled its earnings over the last quarter, thanks to significantly higher oil prices and bumper revenue from natural gas trading.

Profits jumped to $3.325bn (£2.4bn) on an replacement cost (RC) basis, up from a loss of $628m in the first quarter of 2020 at the start of the pandemic, and a profit of $825m in Q4 2020.

On an underlying RC basis, first-quarter profits more than tripled year-on-year, to $2.6bn.

BP says it is also commencing share buybacks in the second quarter, having hit its net reduction targets early after a ‘strong quarter’.

But although the global economic picture is brightening, the terrible scenes in India show that the pandemic is far from over. With cases at record levels, thousands are dying each day and India’s hospital system is being overwhelmed.

Also coming up today

Investors are digesting Tesla’s Q1 results released last night, which saw the electric carmaker post record profits of $438m (£315m), a new record, and also beat revenus forecasts.

It also reported a $101m “positive impact” on profitability from bitcoin, having invested $1.5bn in the cryptocurrency earlier this year, and subsequently sold $272m worth.

But, Tesla’s shares dipped in afterhours trading, on concerns that rising supply chain costs and lower average selling prices were hitting profit margins.

European stock markets are expected to open flattish, after the S&P 500 and the Nasdaq closed at record highs last night.

Commodities are still hot - with copper hitting a 10-year high on Monday.

The agenda

  • 8.30am BST: Swedish Riksbank interest rate decision
  • 9am BST: Italian business confidence for April
  • 11am BST: CBI distributive trades survey of UK retail
  • 2pm BST: US house price index for February
  • 3pm BST: US consumer confidence for April

Updated

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