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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

TSB fined £48m over IT migration meltdown; UK house prices ‘could fall 5%’ in 2023 soft landing – as it happened

TSB United States FCA PRA Financial Conduct Authority TSB Bank
A TSB bank sign.
A TSB bank sign. Photograph: Aaron Chown/PA

Summary

Time for a recap…

UK bank TSB has been fined £48.65m by City regulators over its massive IT meltdown in 2018 that blocked millions of customers from their accounts for weeks.

Building society Nationwide has predicted that UK house prices only experience a “relatively soft landing” next year, and drop around 5%.

Train drivers union ASLEF has announced another one-day strike on Thursday 5 January after members at 15 train companies voted overwhelmingly for more walk-outs in a long-running dispute over pay.

British Airways has apologised after a technical issue triggered a wave of flight delays across the US and the Caribbean, causing delays for passengers including the British actor and model Liz Hurley.

Taiwan has suffered its biggest drop in export orders in over a decade, in a sign that global demand may be weakening.

US industrial conglomerate 3M has pledged to stop making forever chemicals by the end of 2025.

The yen has hit a four-month high against the US dollar, after the Bank of Japan surprised investors by reviewing its yield curve control policy.

Six of the UK’s largest banks will start lending on medium and high-rise flats with cladding from January, in a move that could help thousands of people stuck in properties they have not been able to sell or remortgage.

Amazon has reached a settlement with the European Union on Tuesday in two antitrust probes.

An exodus of more than half a million people from the British workforce since the Covid pandemic is putting the economy at risk of weaker growth and persistently higher inflation, a Lords report has warned.

Just in: applications for a new permit to build a house in the US fell sharply last month.

US building permits were down 11.2% year-on-year in November – a sign that construction activity may be slowing.

Residential property constrution starts also declined, dropping by 0.5% last month, to an annualised rate of 1.43m.

Amazon has reached a settlement with the European Union in two antitrust probes, after addressing concerns over its use of sellers’ data.

The move will save Amazon from a fine of up to 10% of its global turnover. The company had been accused of using the sales data of independent retailers to illegally gain an advantage in the European marketplace.

Reuters has the details:

In the first case, Amazon faced charges of using its size, power and data to push its own products to gain an unfair advantage over rival merchants that also use its platform.

The company has agreed not to use sellers’ data for its own competing retail business and its private label products.

The second case was about the equal treatment of sellers when ranking their offers for the “buy box” on its website that generates the bulk of its sales.

Amazon has agreed to set up a second prominently displayed buy box for a rival product if it differs substantially in price and delivery from the product in the first box.

Margrethe Vestager, the European Commission’s executive vice president who oversees digital policy and antitrust enforcement, says the decision “sets new rules for how Amazon operates its business in Europe”.

Vestager adds:

Amazon can no longer abuse its dual role and will have to change several business practices.

“Competing independent retailers and carriers as well as consumers will benefit.

Updated

3M to exit 'forever chemicals' manufacturing by the end of 2025

US industrial conglomerate 3M has pledged to stop manufacturing “forever chemicals” known as PFAS by the end of 2025.

Announcing the move, 3M says:

3M’s decision is based on careful consideration and a thorough evaluation of the evolving external landscape, including multiple factors such as accelerating regulatory trends focused on reducing or eliminating the presence of PFAS in the environment and changing stakeholder expectations.

PFAS, or Perfluoroalkyl and Polyfluoroalkyl Substances are used in a range of everyday products, including non-stick cookware, food packaging and fire retardants.

They do not break down quickly, and have been detected in food, water, and human bloood, and linked to illnesses such as cancer, liver damage and immune system disruption.

3M says it is “committing to innovate toward a world less dependent upon PFAS”, but insists that its products are safe for their intended uses.

3M’s move comes amid growing concerns over PFAS, from goverments and investors.

Earlier this month, the Netherlands’s government was exploring its legal options against 3M over PFAS contamination in the Dutch part of the Scheldt river.

In August this year, the Biden administration said it will propose designating certain “forever chemicals” as hazardous substances under the nation’s Superfund program.

A coalition of asset managers has also weighed in, demanding the phaseout of “forever” chemicals, the FT reported this month.

3M expects to incur related total pre-tax charges of about $1.3bn to $2.3bn over the course of its exit from PFAS.

Updated

Reuters points out that British house prices rose by more than a quarter in the two years after the onset of the COVID-19 pandemic as people sought more space to live and took advantage of low borrowing costs and tax incentives.

In other property news, six of the UK’s largest banks will start lending on medium and high-rise flats with cladding from January.

The move that could help thousands of people stuck in properties they have not been able to sell or remortgage.

Lenders including Barclays, HSBC, Lloyds, Nationwide Building Society, NatWest and Santander, said they would consider fresh mortgage applications from 9 January, after receiving long-awaited guidance from the Royal Institution of Chartered Surveyors (Rics) on how to value affected properties.

The changes stand to benefit mortgage prisoners and prospective buyers of cladding-affected flats in buildings more than 11 metres high, though they will still need to prove that the dangerous materials will either be removed by developers, or covered by leaseholder protections or a specific government scheme.

Here’s the full story:

The jump in UK house prices in the first eight months of 2022 was particularly surprising, as housing affordability was already being stretched.

Nationwide say:

In particular, deposit requirements had become increasingly onerous as a result of house prices outstripping earnings by a wide margin in recent years. A 10% deposit on the typical mortgage on a first-time buyer property increased to almost 60% of annual gross earnings – an all-time high.

This chart shows how affording a deposit for a new home has become more of a stretch:

Nationwide data showing how UK house price affordability has fallen

Nationwide’s report this morning shows that between January and August, the average UK house price increased by almost £20,000, from £255,556 to £273,751, before starting to fall.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, agrees that there are hopes of a soft landing in the UK housing market next year.

As the economic gloom darkens with impending recession it’s unlikely we will see people rushing back into the market in their droves any time soon – Building Societies Association data has shown even higher earning households increasingly worried about their bills and affordability of mortgage payments is seen as the main barrier to property purchase – even more so than saving increasingly huge deposits.

However, there still seems to be hope for something of a soft landing as we head into the New Year. The expectation is that the recession will not result in mass redundancies and that fixed rate mortgage deal rates may have peaked. With luck this can tempt people back into the market and support activity with prices edging down modestly rather than any kind of crash. This should come as some comfort after what has been a truly terrible year for many.”

Here’s our news story on TSB’s fine:

On the house price slowdown….Tom Bill, head of UK Residential Research at estate agents Knight Frank, predicts a 10% fall over the next two years.

“The mini-Budget has been a distraction from the fact the era of cheap debt is ending and house prices are due to correct after rising by more than 20% during the pandemic. As the mini-Budget works its way through the system, the UK housing market exists in a strange reality of falling mortgage rates and a rising bank rate. It’s therefore understandable that some buyers and sellers are pressing the pause button over Christmas.

“More clarity should come next year as the spring selling seasons gets underway and the price expectations of sellers are properly put to the test. Mortgage rates will eventually settle at least 2 percentage points higher than they were this spring, which means it could be a ‘wake up and smell the coffee’ moment for the housing market.

Higher borrowing costs will keep transaction volumes in check and result in more widespread price declines in 2023, with values expected to fall by 10% over the next two years as buyers and sellers recalculate their options.”

The “eye-watering” near-£49m fine issued to TSB and the £32.7 million paid in customer redress are “stark reminders of the consequences of badly executed change”, says Nisha Sanghani, Ashurst Risk Advisory partner:

In this case, as part of an upgrade in IT systems, whilst data was migrated successfully, the technical failures that followed on the system led to a significant disruption in banking services.

These disruptions were unexpected, and had likely not been planned for during operational resilience testing over the new system.

In its public notice the FCA cites failings in terms of governance and operational risk, which reinforces the fact that operational risk and oversight are not just concepts for business as usual but must also be factored into the planning and execution of any change projects, where arguably the impact of a failure can be substantial and unpredictable.”

Aslef announces strike on January 5th

Train drivers at 15 rail companies are to stage a fresh strike on Thursday January 5 in
their long-running dispute over pay, union Aslef have just announced.

The strike will take place between strikes already announced by the RMT rail union, running between 3-4 and 6-7 January.

Updated

TSB’s 2018 IT migration fiasco, for which it has been fined over £48m, was “the latest in a long line of poorly executed and technology transformations with near existential consequences”, says Tim Wright, partner at law firm Fladgate.

Wright adds:

For TSB this was to prove a perfect storm of which the bank is still reeling from with this massive fine from its regulators. The bank had been spun out of Lloyds Banking Group, listed on the stock exchange in 2014, and acquired the following year by Sabadell.

Under the direction of its new owner, TSB had been trying to migrate customer data from legacy Lloyds systems to a new Sabadell owned platform. But the new platform proved to be unfit for purpose, leading to a PR disaster as platform went into meltdown affecting all of its branches and a large proportion of its 5.2 million customers costing it some £32.7m compensation as well as a huge amount of wasted management time and remedial cost and expense, since the bank was not back to business as usual until December 2018, with then CEO, Paul Pester, carrying the can and resigning.”

Last week, rival lender Halifax estimated that UK house prices could fall 8% next year, due to rising mortgage costs and the broader cost of living crisis.

Nationwide’s predictions of a 5% drop in UK house prices next year is smaller than other forecasts made shortly after September’s mini-budget.

Credit Suisse estimated in late September that prices could fall by at least 10% next year, after the surge in mortgage rates in the market turmoil.

That surge has partly unwound since, after chancellor Jeremy Hunt ditched most of the unfunded tax cuts announced by his predecessor Kwasi Kwarteng.

Nationwide sees 5% fall in UK house prices in 2023

Building society Nationwide has predicted that UK house prices could fall 5% next year, in a ‘relatively soft landing’.

Robert Gardner, Nationwide’s chief economist, points out that the housing market has been “remarkably resilient” this year, with annual house price growth in double digits before the mini-Budget drove up borrowing costs.

Gardner says:

“The risks are skewed to the downside, but there is still a good chance that we can achieve a relatively soft landing next year with activity stabilising modestly below pre-pandemic levels and house prices edging lower, perhaps by around 5%.

“The Bank of England is likely to raise interest rates a little further, although in recent years most borrowers have opted for fixed rate mortgages which are linked to longer term interest rates that may have already peaked. If so, this will help provide some support to affordability as will solid gains in nominal earnings growth and modestly lower house prices.

UK house price growth
UK house price growth Photograph: Nationwide

Updated

Taiwan export orders tumble in warning signal for global economy

In a worrying sign for the global economy, Taiwan has suffered its biggest drop in export orders in over a decade.

Taiwan’s manufacturers were hit by a plunge in demand from China, where Covid-19 outbreaks and lockdowns hit its economy, and weakening consumer demand worldwide as interest rate hikes bite.

Taiwan’s export orders were 23.4% lower than a year ago in November, the Ministry of Economic Affairs said on Tuesday.

That’s much worse than analyst forecasts of an 11.2% drop, and the biggest decline since the aftermath of the 2008 global financial crisis.

Bloomberg has more details:

Taiwan’s orders for all major product categories fell, with optical products, plastics and basic metals registering the biggest contractions. Electronic products, which includes orders for semiconductors, fell by 15.2% versus November 2021.

The government attributed the bigger-than-expected decline to waning end-user demand, inventory adjustment by clients and to disruption to manufacturing in China due to Covid controls, according to the ministry’s statement.

Updated

Model and actress Liz Hurley is caught up in the BA travel chaos.

She says she’s stranded at Antigua airport with no food or water, facing a 20-hour delay.

British Airways apologises after US flights delayed

Some British Airways passengers are facing pre-Christmas travel disruption after a “a technical issue” with its flight planning systems.

The airline has apologised after flights due to depart from the US were grounded for several hours, which is having a knock-on impact on other flights today.

My colleague Jamie Grierson reports:

The airline said problems with its third-party flight planning supplier were behind the delays, as customers reported disruption in departing cities including Denver, New York and Miami.

Passengers reported delays of up to seven hours on Twitter with some complaining of a lack of communication from the airline.

Around 11 BA departures from Heathrow today have been cancelled, according to the airport’s live departure board. The list includes three to New York’s JFK airport plus one flight each to Boston, Washington DC, Chicago, Nashville and Baltimore, plus Tokyo, Reykjavik and Toronto.

David Rees, a member of Wales’s Senedd, is caught up in the disruption, and reports that he hadn’t been offered an alternative flight:

Updated

Elsewhere in the markets, Europe’s stock indices have dropped in early trading after the Bank of Japan’s suprise policy change.

Germany’s DAX has lost almost 1%, while France’s CAC is down 1.3%. In London, the blue-chip FTSE 100 is faring better, only down 0.25%.

Victoria Scholar, head of investment at Interactive Investor, explains:

The FTSE 100 is nursing lighter losses with miners Antofagasta and Fresnillo at the top of the UK index, helping to limit further downside.

However most FTSE 100 stocks are trading lower with Ocado, Land Securities and Sage Group down by more than 3% each. European indices are taking their cues from a difficult session overnight in Asia and on Wall Street with risk-off sentiment driving the tech-heavy Nasdaq down by 1.5%. It looks like Father Christmas has failed to bring about his much-anticipated Santa rally this year with last week’s central bank bonanza preventing markets from pushing higher.

Volumes are also typically much lighter around this time with many traders and investors away for Hanukkah and Christmas, which can exacerbate any market moves in either direction.

The Japanese yen jumped to a 4-month high overnight after the Bank of Japan surprised markets with a change to its policy, widening the band to let long-term yields move by 50 basis points around its 0% target up from the previous 25 basis points. However it said this was to improve the functioning of the market, rather than being an interest rate hike.

Japan has been an outlier in terms of the global shift towards monetary tightening, given its long-standing history with deflation that means the BoJ unlike other central banks, has been welcoming the prospect of some inflation. However some say that today’s policy tweak could signal the start of an exit from its current strategy. The yen’s rally has punished the Nikkei which traded sharply lower overnight given its inverse relationship with the Japanese currency.

Updated

Yen soars after Bank of Japan tweaks policy

An entrance to the Bank of Japan (BoJ) headquarters complex in Tokyo today
An entrance to the Bank of Japan (BoJ) headquarters complex in Tokyo today Photograph: Richard A Brooks/AFP/Getty Images

There’s drama in the currency markets today, after the Bank of Japan surprised investors with a tweak to its yield curve control policy.

In an unexpected move, the BoJ will widen the trading band for the 10-year government bond yield within its YCC policy – under which it buys or sells Japanese bonds to target a longer-term interest rate.

The news sent the yen soaring over 3% to a four-month high against the US dollar, clawing back some of its recent losses.

The dollar-yen exchange rate
The dollar-yen exchange rate Photograph: Refinitiv

But it also caused big swings in the bond and equity markets, with the Nikkei share index falling 2.5%.

The decision surprised investors who had expected the BOJ to make no changes to its yield curve control (YCC) until Governor Haruhiko Kuroda steps down in April.

ING economist Min Joo Kang says the move has “shocked markets”, adding:

Despite the denials, we think Governor Kuroda is trying to pave the way for policy normalisation before stepping down. A policy shift immediately after the leadership change is difficult and could miss the opportune time to end the decades-long ultra-low policy.

He may be right that monetary policy should remain accommodative until a stable 2% inflation target is met and that the policy review is not needed in the short term. But, with today’s tweak, his successor will have more flexibility to deploy monetary policy in the future.

Ryanair agrees pilot pay deal

Ryanair flight FR1964 takes off from Dublin Airport's new North Runway in August.

Travel news: Ryanair has agreed a four-year pay deal with its Irish pilots which will include the immediate restoration of pay cuts from during the Covid-19 pandemic.

The Ireland-based airliner had spent months in discussions with the Forsa union over a long-term pay deal.

Ryanair’s pilots in Ireland will now receive three years of pay increases over the next four years until March 2027 through the deal, the low-cost carrier told investors on Tuesday.

Ryanair’s people director Darrell Hughes said:

“We welcome this pay restoration agreement with Forsa and our Irish pilots which will see pay cuts previously agreed during Covid restored in the Dec payroll in time for Christmas.

This agreement which includes annual pay increases for the next four years now brings our Irish pilots into line with similar pay restoration deals concluded with our other pilot unions across Europe over the past nine months.

We are grateful for the assistance of the WRC in reaching this sensible agreement with Forsa and our Irish Pilots.”

Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, says that the disruption suffered by TSB customers in 2018 is not acceptable:

‘The PRA expects firms to manage their operational resilience as well as their financial resilience.

The disruption to continuity of service experienced by TSB during its IT migration fell below the standard we expect banks to meet

As well as today’s fines, TSB has paid £32.7m in redress to customers who suffered from the bothed IT migration of 2018.

The FCA and PRA say:

All of TSB’s branches and a significant proportion of its 5.2 million customers were affected by the initial issues. Some customers continued to be affected by some issues and it took until December 2018 for TSB to return to business-as-usual.

TSB apologises again over IT meltdown

TSB has confirmed it has reached agreement with the FCA and the PRS over its 2018 Migration Programme, and apologised to customers who were caught up in the mess.

TSB’s chief executive officer, Robin Bulloch, says the bank has made changes since:

“We’d like to apologise again to TSB customers who were impacted by issues following the technology migration in 2018. We worked hard to put things right for customers then and have since transformed our business.

“Over the past four years, we have harnessed our technology to deliver new products and better services for TSB customers.”

Introduction: TSB fined over IT migration meltdown

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

TSB bank has been fined £48.65m over a notorious botched IT migration which left customers locked out of their bank accounts for days back in 2018.

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have fined TSB Bank £48,650,000 for “operational risk management and governance failures”, including management of outsourcing risks, relating to the bank’s IT upgrade programme.

The programme involved a migration to a new IT platform in April 2018, from a system operated by its former owner, Lloyds Banking Group, to one designed by its current owner, the Spanish bank Sabadell.

It immediatedly left customers facing technical failures and ‘significant disruption’ to TSB’s branch, telephone, online and mobile banking services. A week into the crisis, half of TSB’s customers were unable to access its internet banking services, in one of the worst banking meltdowns in many years.

Today, the regulators say that TSB “failed to organise and control the IT migration programme adequately”, or to properly manage the operational risks from outsourcing work to a critical third-party supplier.

The incident shows the critical importance that firms invest in resilience to avoid the widespread harm that operational disruption can cause, the FCA and PRA say say.

Mark Steward, executive director of Enforcement and Market Oversight at the FCA, says:

‘The failings in this case were widespread and serious which had a real impact on the day-to-day lives of a significant proportion of TSB’s customers, including those who were vulnerable.

‘The firm failed to plan for the IT migration properly, the governance of the project was insufficiently robust and the firm failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.’

As we liveblogged at the time, some TSB customers vowed to close their accounts, while others reported spending hours on the phone trying, and failing, to get through to customer support.

There was also a surge in fraud attempts, while then CEO Paul Pester forfeited a £2m bonus (and endured a bruising session in front of MPs on the Treasury committee). Pester resigned in September 2018.

TSB has been fined £29,750,000 by the FCA and £18,900,000 by the PRA – which includes a 30% discount for having agreed to resolve this matter (otherwise it would have been fined £69,500,000).

The agenda

  • 7am GMT: German PPI index of producer prices

  • 7am GMT: China’s FDI (foreign direct investment) data for November

  • 1.30pm GMT: US building permits and housing starts for November

Updated

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