And finally, London’s stock market has closed for the day. The FTSE 100 is virtually unchanged, down o.89 of a point at 7246.77.
In New York the Dow is currently in the red. It’s down 108 points or 0.43%.
That’s all for today. Thanks for reading and commenting. GW
Here’s our full story into the Treasury Committee’s decision to release the official report into Royal Bank of Scotland’s treatment of small businesses.
Charles Randell has also told MPs that he’s committed to avoiding another financial crisis.
He says the impact of the crisis was “nothing short of disastrous” on many people, and “we can’t go there again”.
Randell adds that “sound prudential and conduct regulation” can play a vital role in ensuring that financial firms stick to the rules, and protect consumers.
Updated
A quick clarification: Charles Randell takes up the reins at the FCA on April 1, so I should have called him the ‘chair-elect’. Now fixed.
Updated
Who is Charles Randell?
Here’s a potted history of the next head of the Financial Conduct Authority, from Pensions Age:
Randell worked at Slaughter and May from 1980 to 2013, becoming a partner in 1989. He was a key adviser in the wake of the financial crisis, helping HM Treasury on the resolutions of Northern Rock, Bradford & Bingley and the Icelandic banks, as well as advising on the government’s investments into RBS and the merged Lloyds and HBOS.
In addition, he advised the Portuguese Ministry of Finance on the recapitalisation of the Portuguese banking sector.
Updated
Next FCA chairman admits 'error of judgement' over tax avoidance scheme
The incoming chair of Britain’s Financial Conduct Authority has admitted an ‘error of judgement’ after investing in a tax avoidance vehicle.
Charles Randell is appearing before the Treasury Committee right now, and revealed that he made a mistake by putting money into the Ingenious Film Partners 2 scheme.
Ingenious Film Partners 2 was a film production partnership which proved popular with many celebrities and sports stars, such as David Beckham and Wayne Rooney. It used tax breaks designed to encourage films to be made in the UK. Those who put money into the scheme could claim tax relief against film production losses.
Randell has admitted that he failed to sufficiently investigate the situation, when he was told by his financial advisor that HMRC had said the scheme was acceptable. He invested in the scheme between 2006 and 2011.
He told the committee that it was an “error of judgement” not to investigate these assurances.
He adds:
I take responsibility for the decision that I took.
I was reassured to hear that this partnership had been discussed with senior policy officials at HMRC who had indicated that they approved of it.
It’s clear to me now that far from taking any comfort from that, I should have seen it as a warning signal because the mere fact that an informal assurance was seen to be necessary should have been telling me that this was an investment for which there wasn’t a specific statutory framework. There wasn’t a binding approval mechanism.
And if HMRC did approve it in 2005, which I’ve been told repeatedly is the case, then it was always open to them to change their mind - which they obviously did do.
Committee chair Nicky Morgan asks Randell if he could see that the Ingenious scheme would look, to the general public, like a “rather clever tax wheeze” to let people pay less tax.
“Yes I can”, Randell replied.
He added that “I dispensed with the services of my financial advisor” after HMRC began taking action against the scheme.
I conducted as best I could my own personal assessment of the situation. I contacted HMRC and asked them to give me the terms of settlement for me personally.
In early 2015, he paid around £114,000 plus interest to HMRC to settle the matter.
Sir Tom Scholar, permanent secretary to the Treasury, has written to the Treasury committee saying that the government’s assessment panel knew of Randell’s involvement in Ingenious, and felt it should not prevent him chairing the FCA.
But, as the FCA’s role includes protecting consumers from dodgy investments, this isn’t a great start to Randell’s tenure at the watchdog....
Updated
Treasury committee publishes report into RBS's treatment of small firms
Newsflash: Britain’s Treasury committee has just published the official report into Royal Bank of Scotland’s treatment of small businesses.
MPs took the decision after forcing Britain’s financial watchdog, the FCA, to hand the report into RBS’s Global Restructuring Group over.
It ends a long battle between the committee and the FCA, which had refused to release the report (which leaked last year). However, MPs concluded that it should be published, having heard evidence that RBS deliberately put companies into GRG’s clutches and drove them to the wall.
Treasury committee chair Nicky Morgan says:
The findings in the report are disgraceful. The overarching priority at all levels of GRG was not the health and strength of customers, but the generation of income for RBS, through made-up fees, high interest rates, and the acquisition of equity and property.
“The Committee has not taken the decision to publish lightly. Normally, reports prepared under section 166 are confidential, but there is overwhelming public interest in bringing transparency to what happened at GRG, given the earlier leak of the report, and in ensuring that everyone can see, and know that they are seeing, an authentic and verified copy of Promontory’s original report.
BREAKING: Treasury committee has published the report, here it is https://t.co/qrNXwQLsDA
— Jim Pickard (@PickardJE) February 20, 2018
Shares in US retail titan Walmart are sliding, after the company missed Wall Street expectations.
The company posted net income of $2.17bn, or 73 cents a share, for the last quarter compared with $3.76bn a year earlier. It also reported a slowdown in online sales growth, which will fuel concerns that Amazon is eating its market shares.
Walmart are down over 8% in early trading.
MORE: Walmart shares clobbered 7 percent, Target down 3.5 percent, Home Depot up 2.4 percent $WMT $HD $TGT pic.twitter.com/Sei2IIz2cM
— Reuters Business (@ReutersBiz) February 20, 2018
Asda, WalMart’s UK operation, reported that growth slowed over the crucial Christmas quarter.
Like-for-like takings rose by 0.5% in October-December, down from 1.1% in the third quarter of 2017.
So much for Asda having won Christmas. Remember those stories about a leaked internal email claiming December sales were up 5.3%? pic.twitter.com/TmZB6Uxy6E
— Patrick O'Brien (@pat_gdretail) February 20, 2018
Latvia continues to be gripped by the arrest of central bank chief Ilmars Rimsevics by anti-corruption officials last weekend.
Rimsevics, who is accused of taking bribes, has told journalists he will not bow to pressure to resign.
Associated Press has more details.
Latvia’s official on the European Central Bank’s main policymaking council refused Tuesday to heed calls to resign following an investigation into suspected bribery and an Associated Press report on allegations of extortion and connections to money laundering.
Ilmars Rimsevics, who was detained Saturday and released on bail two days later without charge, was defiant, dismissing the allegations against him as a smear campaign by commercial banks.
“I made a decision not to step down because I am not guilty,” he said.
The country’s anti-corruption agency has started a probe into suspected bribery. And the AP has reported that the chairman of local bank Norvik, Grigory Guselnikov, says Rimsevics had asked for bribes since 2015.
Guselnikov and Norvik have filed an international request for arbitration to a body of the World Bank to resolve what the document claims is the request for bribes and abuse of power by a “Senior Latvian Official.” Guselnikov and Norvik CEO Oliver Bramwell have confirmed that official is Rimsevics.
Rimsevics said “my retreat would allow a man like Guselnikov to triumph.”
Wall Street is expected to open lower, when trading begins in 50 minutes.
US Opening Calls:#DOW 25096 -0.38%#SPX 2721 -0.31%#NASDAQ 6743 -0.48%#IGOpeningCall
— IGSquawk (@IGSquawk) February 20, 2018
Morgan Stanley: More market drama ahead
Tin hats on, folks. Analyst at Morgan Stanley think the recent stock market volatility was just an ‘appetiser’.
In a new note to clients, Morgan Stanley warn that stocks will come under pressure again soon.
They predict a ‘tricky handover’ in April-June, when inflation may be rising just as economic indicators cool. This could be a bad environment for stocks, they warn:
It’s when growth softens while inflation is still rising that returns suffer most.
So the stock market falls a couple of weeks ago, which drove Wall Street into a correction, could just be an “Appetiser, not the main course”.
Here’s the key section from their report:
Our cycle models suggest that DM [developed markets] remains in the late stages of a late-cycle environment. Rising equities, rising inflation, tightening policy,higher commodity prices and higher volatility are (in our view) a pretty normal pattern if that view is correct. Underneath all that sound and fury of the recent volatility spike, we think we’re still dealing with a playbook with a reasonable amount of precedent.
Inflation, after all, often plays a role in a late-cycle volatility rise,as there’s tension between still-strong current conditions,and the effect of tightening (later).
Meanwhile, the Greek prime minister Alexis Tsipras has spoken to the German chancellor Angela Merkel.
Although tensions with Turkey are believed to have dominated discussions, last night’s euro group also got a mention.
Greek finance ministry officials have also revealed that they expect the country’s next batch of bailout loans, the fourth tranche under the country’s final bailout programme, to be released by the end of March at the latest.
Of the €5.7bn total amount, €3.3bn will be used to cover debt financing needs, €500m will go towards repaying government obligations to the private sector while the remaining €1.9bn will be put towards the cash buffer Athens is currently building to cover post-bailout needs.
“Headway is also being made on debt relief discussions,” said one source adding that by March 1st plans will have been drawn up and presented to the Euro Working Group (advising euro area finance ministers) by technical teams visiting Athens.
Greece 'close' to getting next bailout tranche
Greece came away empty handed from last night gathering of euro zone finance ministers.
The Eurogroup concluded that Athens still hasn’t hit all the targets to receive its next aid tranche. But despite that, the meeting wasn’t all bad.
Helena Smith reports from Athens:
Though Greece failed to win the approval of fresh loans at the meeting, Mario Ceneco, the eurogroup chief, was fulsome in his praise for the country. Athens, he said, had made huge strides in implementing requisite reforms.
The two ‘prior actions’ that had not been enforced – electronic auctions of foreclosed properties, a testy issue that the Greek finance minister Euclid Tsakalotos is believed to have clashed over with ECB president Mario Draghi at the meeting and privatization of Athens’ old international airport – were “outside the control of the government”.
“I am confident they can be cleared soon,” Ceneco was quoted as saying. As soon as that happened creditors would give the green light for a new tranche worth €5.7bn to be disbursed.
The EU’s economic and financial affairs commissioner Pierre Moscovici was also generous with the plaudits saying everything must be done over the course of the next six months to allow Greece to successfully exit its final bailout programme.
Both officials said discussion was already underway to restructure Athens’ staggering debt load – at almost 180 percent by far the highest in the euro zone. Dent relief is considered vital if Greece is to recover from its worst economic crisis in modern times.
Updated
Here’s EY’s Howard Archer on the slowdown in UK factory orders:
- The overall orders balance dipped to a 4-month low in February, although it remained appreciably above long-term norms. February’s slowdown in orders seemed primarily due to a moderation in foreign demand after a very strong January performance. Domestic demand has also come off the peak levels seen in late-2017
- The outlook for manufacturing looks bright on the foreign demand side, but domestic conditions could prove challenging over the coming months
- On the domestic demand front, still squeezed consumer purchasing power and business caution over investment amid significant uncertainties largely focused on Brexit are a challenging combination for manufacturers. This is being reinforced by increased prices for big-ticket consumer durable goods and capital goods.
UK factory order growth hits four-month low
Newsflash: UK factory order growth slowed this month, according to the CBI’s monthly ‘industrial trends’ survey.
The CBI found that 30% of manufacturers reported total order books to be above normal in the last quarter, and 20% said they were below normal.
That gives a net balance of +10 in the three months to February, down from +14 in January; the weakest growth since October.
The balance of export orders fell more sharply, from +19 to +10 in February -- a sign that overseas demand for UK goods weakened this month.
Anna Leach, the CBI’s head of economic intelligence, says manufacturers are still doing pretty well. She fears, though, that uncertainty over Britain’s exit from the EU could hurt the sector.
“This month saw another strong showing from UK manufacturers. Although order books weren’t quite as buoyant as they were last month, demand remains strong and output grew briskly.
“With the Brexit negotiations reaching a critical juncture, many businesses are concerned about future barriers to trade and are looking for clarity over the future relationship with the EU. Remaining in a comprehensive customs union will help alleviate some of those fears and give firms the confidence to invest and grow.”
As this chart shows, UK manufacturers have enjoyed a boost since the EU referendum (partly thanks to the slump in the pound, which make exports more competitive).
The UK stock market has dipped into the red, dragged down by three heavyweight members.
Mining giant BHP Billiton is leading the fallers, down over 4%, despite posting its best six-monthly profit figures since 2014 and raising its dividend. Reuters reckons traders aren’t impressed by rising costs at the company.
InterContinental Hotels shares are also down, around 4%, in spite of beating City forecasts for its profits in 2017. The company announced plans for a ‘a new upscale conversion brand in 2018’ - and is ruling out handing shareholders any “additional capital” while it focuses on a new strategy to boost growth.
The third laggard is HSBC - still down over 3% after missing profit forecasts this morning.
Over in Frankfurt, the German DAX has also dipped into negative territory after this morning’s ZEW confidence survey.
German economic confidence declines
Breaking: Economic confidence among German investors has fallen.
The Centre for European Economic Research (ZEW) reports that its monthly index of German economic expectations shrank by 2.6 points this month, to 17.8. Expectations for the eurozone, US, UK and Japanese economies also declined.
Investors are also a little gloomier about current economic conditions in Germany -- this subindex fell by 2.9 this month to 92.3.
Confidence may have been hit by the recent turbulence in the world’s stock markets, and the struggle to form a German coalition government.
ZEW president Professor Achim Wambach says the German economy still looks strong, though:
“The latest survey results continue to show a positive outlook for the German economy. The assessment of the current economic situation is still on a very high level and the economy is expected to improve in the coming six months. Economic growth in Germany is substantially driven by the very good development of both the global economy and private consumption. Inflation expectations for Germany and the Eurozone have also started to increase.”
Here’s more expert reaction:
German investor morale falls less than expected in February
— Nour E. Al-Hammoury (@NourHammoury) February 20, 2018
ZEW Eco sentiment 17.8 vs. 20.4
Current Conditions 92.3 vs. 95.2
#Germany | ZEW INSTITUTE FEB ECONOMIC SENTIMENT INDEX: 17.8 VS 20.4 PRIOR pic.twitter.com/TU6dkuYwKX
— Ioan Smith (@moved_average) February 20, 2018
German #ZEW index drops only marginally in February. Analysts seem hardly impressed by latest market turmoil and political uncertainty.
— Carsten Brzeski (@carstenbrzeski) February 20, 2018
Business Insider: European Parliament wants Britain to have 'privileged' single market access
Hello.... The pound is suddenly rallying, shaking off its early losses.
The recovery has been triggered by a report in Business Insider, saying that the European Parliament is drawing up a plan to give Britain “privileged” access to the single market.
If so, that would calm some of the worries about a hard Brexit.
Here’s the key points from the report:
- Exclusive: The European Parliament is preparing a “detailed,” 60-paragraph resolution which will call for more flexibility in future relationship talks with Britain.
- The Parliament wants the EU to negotiate an ‘association agreement’ which could give Britain “privileged” single market access and membership of EU agencies.
- The resolution marks a break from the position of the EU’s chief Brexit negotiator.
- The Parliament’s plans were revealed to British MPs during meetings in Brussels this week.
#GBPUSD on that European Parliament report pic.twitter.com/B032nOKnJY
— Neil Wilson (@neilwilson_etx) February 20, 2018
that European Parliament report is about as pound-positive as it gets right now, combined with BoE expectations could nudge sterling higher if confirmed
— Neil Wilson (@neilwilson_etx) February 20, 2018
Here’s some reaction to William Hill’s money-laundering fine, from deputy Labour leader Tom Watson:
William Hill has just been fined £6.2m by the Gambling Commission for accepting money from criminals without carrying out proper background checks. And this is an industry that talks about ‘responsible gambling’. They’re turning a blind eye to dirty money.
— Tom Watson (@tom_watson) February 20, 2018
My colleague Randeep Ramesh points out that he highlighted this problem back in 2013:
William Hill gets a £6m fine for money laundering today but contrite responses were lacing when I raised it 5 years ago >> The gambling machines helping drug dealers 'turn dirty money clean' https://t.co/SOSvkoMJGx
— Randeep Ramesh (@tianran) February 20, 2018
UK betting company William Hill has been hit with a £6.2m fine today, after accepting money linked to criminal activities.
Gambling regulators imposed the penalty for failing to stick to Britain’s anti-money laundering and social responsibility regulations.
Angela Monaghan explains all:
The Gambling Commission said that over the two years to August 2016, the company failed to spot obvious signs of problem gambling, and in doing so breached anti-money laundering and social responsibility regulations.
It is the commission’s second-largest penalty on record, after it fined the betting firm 888 £7.8m last year for failing to protect vulnerable customers. The regulator said that as a result of failings by senior management and staff at William Hill, 10 customers were able to deposit money linked to criminal offences, which resulted in financial gains for the group of around £1.2m.
Tim Miller, executive director of the Gambling Commission, said there were clear warning signs of problem gambling in the spending patterns of some customers that William Hill should have picked up on.
Over in the City, shares in banking giant HSBC have fallen by 4% in early trading.
HSBC reported an 11% jump in adjusted pre-tax profits for the last year, to almost $21bn. That’s below analyst expectations; not a great way for outgoing CEO Stuart Gulliver to sign off.
Revenues grew 5%, as the bank benefits from the pick-up in global growth.
Gulliver’s replacement, John Flint, reckons he has “a great platform to build on”. Shareholders are less optimistic, knocking the bank’s shares down 31p to 729p.
Laith Khalaf, senior analyst at Hargreaves Lansdown, says:
HSBC has definitely pinned its flag to the Asian mast, with over three quarters of profits now coming from the far east. The long term appeal of this approach is clear, with the Asian middle class set to balloon by a staggering 2 billion people by 2050.
However this approach comes with risks attached. The strength of HSBC’s share price over the last two years has a lot to do with better than expected economic performance from China. That’s all well and good, but this cuts both ways, and looking forward if China sneezes, HSBC is going to catch a nasty cold.
Updated
In another sign of Brexit angst, City traders have been buying more insurance against the pound weakening.
Bloomberg has spotted that protecting yourself against short-term sterling volatility is now more expensive than insuring against volatility for a whole year. It’s usually the other way round.
This suggests investors expect some twists, turns and pitfalls as the two sides try to hammer out a Brexit transition deal.
Neil Jones of Mizuho Bank explains:
“Brexit politics is expected to be more certain in the longer term than in the short term.... [but the] market is leaning toward expecting an OK outcome.
Traders are worried about the pound's short-term prospects https://t.co/VV6Nv693gE pic.twitter.com/kRBhZrzXch
— Bloomberg (@business) February 20, 2018
Connor Campbell of SpreadEx says the pound is suffering from “some pre-David Davis Brexit speech jitters”.
Davis delivers his speech, in Austria, at around 9.30am UK time. That means you’ve got time to read our profile of the man handling Britain’s stickiest political challenge in generations:
Pound weakens ahead of Brexit speech
The pound is coming under some pressure this morning, as City traders fret about the state of the Brexit talks.
Sterling has shed over half a cent against the US dollar, falling back below $1.40 to trade around $1.394.
The pound had been rallying in recent weeks, driven by speculation that the Bank of England will hike borrowing costs. But investors haven’t taken their eye off Brexit, and the risks of a ‘hard’ exit from the European Union.
Jasper Lawler of CMC Markets says the infighting within the government is hurting the pound.
Whilst the BoE could look to raise interest rates as soon as Spring, this is being overshadowed by Brexit concerns or more specifically confusion from Theresa May’s Brexit cabinet and uncertainties over the post Brexit transition period.
As a result, demand for the pound remains limited.
Today’s losses come ahead of an eagerly-awaited speech from David Davis, secretary of state for leaving the EU. He’ll pledge the Britain won’t abandon workers rights and environmental concerns after Brexit.
In a colourful twist, Davis is expected to promise that Britain won’t turn into a Mad Max-style dysopia. That sort of talk might not calm nerves in the City.....
Tuesday’s GUARDIAN: “Davis: Brexit will not plunge Britain into ‘Mad Max dystopia’ “ #bbcpapers #tomorrowspaperstoday pic.twitter.com/NynCqk8JRP
— Allie Hodgkins-Brown (@AllieHBNews) February 19, 2018
David Davis will say in his speech tomorrow: “They fear that Brexit could lead to an Anglo-Saxon race to the bottom, with Britain plunged into a Mad Max-style world borrowed from dystopian fiction.” pic.twitter.com/N3JpiIysjR
— Jack Maidment (@jrmaidment) February 19, 2018
The agenda: UK factories and German confidence
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
European stock markets are expected to open cautiously today, after a weak session in Asia.
The Japanese and South Korean markets have both shed around 1%, with some profit taking after Monday’s gains.
Although the volatility has calmed down, there’s still some anxiety out there, as David Madden of CMC Markets says:
The herd mentality is always evident in the wake of a major sell-off as individuals like to feel they are part of the pack.
The CBI will release a new healthcheck on Britain’s manufacturing sector today, which might move the markets. There’s also a fresh German economic confidence report. It may show that the recent stock market volatility, and the long coalition talks in Germany, have hit morale.
On the corporate front, HSBC, BHP Billiton and Intercontinental Hotels are reporting results.
The agenda:
- 10am GMT: The ZEW index of German economic confidence for February
- 11am GMT: CBI industrial trends survey for February
- 3pm GMT: The EC’s Eurozone consumer confidence survey for February
Updated
