Banks told Covid-19 no excuse to delay beefing up EU Brexit hubs

Banks in the UK are coming under growing pressure from regulators to get their new hubs in the European Union up and running even as Covid-19 and foot-dragging by clients disrupt Brexit relocation plans, banks and regulators say. 

Unfettered direct access to the EU for Britian’s financial services sector, worth around £26 billion a year, ends on December 31 and few bankers are betting on an extension. 

More than 60 banks in London have set up or expanded operations in the bloc, think tank New Financial has calculated but with just four months to go, not all are ready. 

“Many institutions in the EU are too small to be viable and are not doing a lot of business yet as clients want to remain connected to deep liquidity in London,” said John Liver, a partner at EY, which is advising banks on their Brexit plans. 

But he added that regulators were hardening their “encouragement” for banks to move the “centre of gravity” of their euro-denominated business from London and demonstrate the viability of new continental hubs. 

Given several near-miss hard Brexits already, some banks have delayed moving people and causing unnecessary disruption for teams and their families, a source at one global bank said. 

The unexpected success of remote working during the pandemic has also raised the question of whether as many bankers, traders, risk managers and support staff need to cross the Channel once the transition period ends. 

“We are wondering why EU regulators need all those people to be physically on the ground in the EU when they can comply with the rules of EU from anywhere,” the banking source said. 

“The pandemic has highlighted how political this issue is,” the source added. 

With no possibility of direct EU-wide access from January, banks in Britain will have to rely on a patchy web of bilateral agreements with national regulators. 

The European Banking Authority, the bloc’s banking watchdog, said it understood the impact of Covid-19 on Brexit plans but hubs still needed to be ready before January. 

“The pandemic has created challenges in some of the plans and some adjustments have been agreed, but the overall principles remain the same,” said Piers Haben, director of banking markets, innovation and consumers at the European Banking Authority (EBA). 

“The mind and management of the bank must be in the single market,” he added. 

A second international banking source said clients were in no rush because they can switch business between jurisdictions at relatively short notice, but staff dealing with EU clients, either from the office or home, must be based in the bloc from January because that is where they will be authorised and taxed. 

With Covid-19 knocking the economy and clients’ operations, there are also questions about the financial sense of running a UK and an EU hub. 

The new hubs want to know how long European Central Bank supervisors will allow “back-to-back” booking, where banks can record EU trading and service activities centrally in London to avoid duplicating costs, the second banker said. 

“Everyone is working on the assumption we are on a path to ending it but not yet; a planned programme rather than a guillotine in January.” 

A spokeswoman for the European Central Bank said some banks had hit target operating models already or were on track to but others were falling short of expectations. 

“The ECB stresses that this is not about moving assets and staff alone. It is also about aiming to be structurally profitable, being operationally self-standing in key areas and most importantly not excessively reliant on back-to-back booking to the parent,” she added.

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Brokers warned on accuracy of returns to Central Bank

Some financial brokers are still not aware that they need to submit audited accounts to the Central Bank every year.

The regulator said there is also a need for greater accuracy in the data submitted to it by some intermediaries.

It said it was engaged in follow-up supervisory check-ups with firms where gaps have been identified.

This comes after a thematic review of the annual returns of retail intermediaries carried out by the Central Bank.

The probe found that some firms were failing to revoke their authorisation from the Central Bank to operate even though they were not actively trading.

They were retaining their authorisation for future use.

After being contacted by the Central Bank of Ireland, the firms’ authorisations were put to use or voluntarily revoked, the Bank said in a statement.

The review found that annual return submission levels have risen from 81pc in 2013 to 98pc this year.

But further improvement is needed by some firms in relation to accuracy of data submitted, producing audited accounts, and voluntary revocation when no longer trading, according to the Central Bank of Ireland’s director of consumer protection Gráinne McEvoy.

“Failure to meet reporting obligations for any reason is not acceptable,” she said.

“Further improvement is needed by firms to ensure the accuracy of data submitted,” Ms McEvoy added.

The regulator noted that consumers who used compliant intermediaries should be able to rely on Central Bank of Ireland registers for the most accurate and up-to-date information.

Brokers Ireland welcomed the finding of 98pc compliance in 2020 with the annual return submission requirements of the regulator.

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Mortgage approvals rose in July

There was a sharp rise in the number of people approved for a mortgage last month compared with the previous month.

Close to 3,400 buyers were approved for a home loan, a rise of 51pc on the figures for June.

But this was still down 30pc on the number approved for a mortgage in July last year, according to the latest figures from the Banking and Payments Federation Ireland.

More than half of the number and value of approvals went to first-time buyers.

Mortgages approved in July were valued at €811m – of which first-time buyers accounted for €462m.

Not all approvals turn into mortgage drawdowns as often potential buyers are outbid, or they may have multiple approvals from different lenders in place and only draw down one of these.

Chief economist at the Banking Federation Ali Ugur said: “With the reopening of the economy we have seen a significant increase in mortgage approval numbers in July compared to the previous month, however on a year-on-year basis, approval numbers are still down which is not unexpected.”

He said that there were 40,090 mortgage approvals in the 12 months ending in July, valued at €9.238bn.

Dr Ugur said annualised mortgage approved figures are a better indicator of the trend.

Annualised mortgage approval activity to end of July decreased in volume terms by 4.1pc compared with the 12 months ending in June.

This was a decrease in value terms of 3.7pc over the same period, he said.

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International finance took smallest Covid hit – report

The international financial services and insurance sectors are set to be among the industries least impacted by Covid-19, according to a report from the Department of Business, Enterprise and Innovation.

The assessment does not include the domestic banks, which have all posted interim losses this year due to the global pandemic.

Nonetheless, the sector is a significant employer here, with over 44,000 working in the area.

The industry’s output for 2020 is forecast to be 94pc of pre-coronavirus levels, the report states. Next year output is expected to be 93pc of pre-Covid levels.

Dermot O’Leary, chief economist at Goodbody Stockbrokers, said the pandemic is affecting different sectors in different ways, with some performing better than others.

“The international financial services sector has not been impacted to a great extent because of the ability for people to work from home and the rebound in the futures markets,” he said.

The rebound in the performance of the markets can be put down to two main factors, according to Mr O’Leary.

“Markets are forward looking, they believe this is a short-term severe shock. They are taking the view that it won’t be a long lasting impact on the performance of companies,” he said.

The markets are also taking into account the level of support from national governments, Mr O’Leary added.

Also, compared to the previous global financial crisis in 2008 – when many major financial institutions had huge debt exposures – international financial services companies are better capitalised with greater diversity of loans and a more manageable credit risk exposure, according to the report.

“Central Bank of Ireland frameworks and systems created post the banking crisis have stood the test of time – as a result, the companies in Ireland have been coping very well with the crisis, continuing to support customers,” it said.

While some niche sectors in the industry in Ireland have been exposed, including aviation, travel insurance, and foreign exchange operators, most areas of the sector appear to be performing “relatively steady.”

Despite the strong performance from the sector, as of mid-June, around one in four people working in the finance, insurance and real estate are estimated to be on the pandemic unemployment payment or temporary wage subsidy scheme. In the early stages of the crisis there was a surge in business activity among IDA Ireland-backed financial services clients here, with market volatility and transaction volumes up.

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German coalition agrees €10bn extension of Covid-19 relief

German coalition parties agreed on Tuesday to extend measures to cushion the effects of the coronavirus crisis on Europe’s biggest economy at a cost of up to €10bn, including prolonging a short-time work scheme and freezing insolvency rules.

The German economy contracted at its steepest rate on record in the second quarter and the government is desperate to mitigate the effects of the pandemic as much as possible, especially in the run-up to elections in the autumn of 2021.

“Corona remains a reality and a challenge,” said Annegret Kramp-Karrenbauer, leader of the conservative Christian Democrats (CDU) after around seven hours of talks with their centre-left Social Democrat (SPD) coalition partners.

“Today we have agreed that we will extend important and effective measures to how we deal with the coronavirus,” she added.

Among the main decisions were an extension of short-time work subsidies, which had been due to expire in March 2021, until the end of next year and prolonging bridging aid for small and mid-sized companies until the end of this year.

Short-time work saves jobs by allowing employers to reduce the employees’ hours but keeps them in work.

Finance Minister Olaf Scholz, a Social Democrat, told public broadcaster ZDF the measures could cost up to €10bn next year.

“The goal now is to stabilise the economy,” said Scholz. “The fact that we acted fast and big has resulted in Germany weathering the crisis much better than other (countries).”

The parties also agreed to prolong measures aimed at staving off bankruptcies by allowing firms in financial trouble due to the pandemic to delay filing for insolvency until the end of the year.

German Chancellor Angela Merkel’s government has also brought in a massive stimulus package, worth more than €130bn, that it hopes will help the economy return to growth.

The coalition parties also agreed on an electoral reform aimed at reducing the number of lawmakers in the Bundestag lower house of parliament.

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Sterling slips against euro after scant progress in Brexit talks

Sterling slipped against the euro today on lingering concerns over Brexit, after British and European Union negotiators said on Friday they had made no real progress in their latest talks on relations after December 31. 

Against the euro, the pound was down 0.2% at 90.28 pence. 

Sterling was slightly up against the US dollar, having fallen more than 1% on Friday, when British and EU chief negotiators blamed each other for the Brexit stalemate as time ticks down to an end-of-year deadline. 

The pound was trading at $1.3103 up 0.1% today, after touching a one-week low of $1.3059 on Friday.

Given the lack of clarity over Britain’s future relations with its biggest trading partner, investors will turn their focus this week to the Bank of England and any signs it may be willing to cut interest rates below zero, wrote ING analysts. 

“The collapse of Brexit negotiations has triggered a relatively contained correction in GBP,” ING wrote. 

“And focus this week will turn to Bank of England speakers that may shed some light around a possible move into negative rates,” it added. 

Also today came news that Britain’s public debt rose above £2 trillion for the first time in July as the government ramped up public spending to cope with the coronavirus pandemic and tax revenues fell. 

Britain’s official budget forecasters raised their estimate for the size of the country’s public debt pile at the end of the current financial year, after data showed that it had passed 100% of annual economic output for the first time.

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Up to 36,000 homes needed each year to meet demand – new report

UP TO 36,000 homes will be needed each year to meet demand and there have been calls to introduce a stimulus package for first-time buyers, according to a new survey.

The report found this number of homes will be vital to meet demand across the next two decades.

But clear suggestions were made for schemes to be introduced to aid first-time buyers due to the expensive cost of housing.

The study found a package also had to be put in place to lower the cost of construction to improve supply, including improving the planning process and increased lending for first-time buyers.

The study was carried out by the EY-DKM Economic Advisory Services, on behalf of the Irish Home Builders Association.

21,000 new homes were built last year. However, that is expected to drop to 17,000 this year.

House building is currently too time-consuming, causing additional costs with delays in the planning system, the report found.

This impact on the delivery of residential developments while design, planning and construction costs, are not always enough to guarantee returns.

This thus then results in the properties often being too expensive for first-time buyers to afford, the report found.

An extension to the Help to Buy Scheme and a streamlining of the planning system and lower cost funding for small builders, could all kickstart the process, it was felt.

State lands also needed to be managed better with density requirements examined and cost-benefit studies carried out, it added.

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Strategic Investment Fund seeks new chief as O’Callaghan moves on

The head of the Irish Strategic Investment (ISIF) Eugene O’Callaghan plans to step down from his role at the end of 2020.

ISIF falls under the management of the National Treasury Management Agency (NTMA), which will begin a recruitment process next month to appoint a new ISIF director.

ISIF was created in December 2014 from the assets of what had been the National Pensions Reserve Fund, including the State’s stakes in bailed out banks – known as the “directed portfolio” plus an €8.1bn so called “discretionary” portfolio that is actively managed by ISIF with a mandate to invest commercially to support economic activity and employment in Ireland.

The idea behind the move was to use the wealth of the former NPRF as a stimulus fund for the domestic economy as it emerged from the period of the global financial crisis and the EU/IMF bailout.

Since 2014, investments by the discretionary arm of the fund has been directed into areas including housebuilders and construction lending, SMEs, high potential start-ups through a tie-up with Silicon Valley Bank and investments focused on climate change.

Meanwhile, ISIF’s ‘directed portfolio’ of stakes in AIB and Bank of Ireland was valued at €7.8bn at the end of June 2019. By June 2020, this portfolio’s value had fallen to €2.6bn.

Eugene O’Callaghan has headed ISIF since it was established. He joined the NTMA in 2005 and was appointed Director of the NPRF in 2010 before transferring to ISIF. Before that he had been chief operating officer and executive director of Irish Life Investment Managers.

NTMA chief executive Conor O’Kelly said: “Eugene is one of the most respected investment professionals in the Irish market. He has been an invaluable colleague and I wish him every success and happiness as he begins a new chapter in his life.”

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Germany agrees €10 billion extension of Covid-19 relief

German coalition parties have agreed to extend measures to cushion the effects of the coronavirus crisis on Europe’s biggest economy at a cost of up to €10 billion.

The measures include prolonging a short-time work scheme and freezing insolvency rules. 

The German economy contracted at its steepest rate on record in the second quarter.

The government is desperate to mitigate the effects of the pandemic as much as possible, especially in the run-up to elections in the autumn of 2021. 

“Corona remains a reality and a challenge,” said Annegret Kramp-Karrenbauer, leader of the conservative Christian Democrats (CDU) after around seven hours of talks with their centre-left Social Democrat (SPD) coalition partners. 

“Today we have agreed that we will extend important and effective measures to how we deal with the coronavirus,” she added. 

Among the main decisions were an extension of short-time work subsidies, which had been due to expire in March 2021, until the end of next year and prolonging bridging aid for small and mid-sized companies until the end of this year. 

Short-time work saves jobs by allowing employers to reduce the employees’ hours but keeps them in work. 

Finance Minister Olaf Scholz, a Social Democrat, told public broadcaster ZDF the measures could cost up to €10 billion next year. 

“The goal now is to stabilise the economy,” said Scholz. “The fact that we acted fast and big has resulted in Germany weathering the crisis much better than other (countries).” 

The parties also agreed to prolong measures aimed at staving off bankruptcies by allowing firms in financial trouble due to the pandemic to delay filing for insolvency until the end of the year. 

German Chancellor Angela Merkel’s government has also brought in a massive stimulus package, worth more than €130 billion, that it hopes will help the economy return to growth.

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Funding relief for businesses hit by Storm Ellen

Up to €20,000 in emergency funding will be made available for small businesses affected by flooding caused by Storm Ellen in Cork this week.

The funding will also be available to help community and sporting groups get back on their feet, as part of an extension to the Humanitarian Support Scheme.

“It’s been a really tough week for the people of Skibbereen and West Cork,” said Tánaiste and Minister for Enterprise, Trade and Employment, Leo Varadkar. “This flooding is an enormous blow at an already difficult time.”

The original scheme was announced earlier this month to provide urgent funding to small businesses, community and voluntary organisations in the South West region who were affected by flooding due to heavy rainfall.  As a result of further damage caused by this week’s storm the scheme will be extended to other affected areas and the closing date for applications will also be extended.

It provides urgent funding to small businesses, sports clubs, community and voluntary organisations who could not secure flood insurance and have premises that have been damaged by recent exceptional weather events.

Minister of State for the OPW Patrick O’Donovan said he visited Skibbereen and saw the damage caused. “It is important that those that have been affected are supported and the extension of the Humanitarian Support Scheme will be of significant assistance to businesses in the town.”

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