Capital Markets Corporate

July 10, 2020

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

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Fintechs anticipate regulatory backlash following Wirecard scandal 
The collapse of Wirecard – Germany’s biggest payments company – may be the modern-day Enron moment for the financial technology sector. Following the insolvency filing, European fintech executives and politicians expect to see tighter regulations similar to the Sarbanes-Oxley law, which emerged in response to the collapse of Enron nearly 20 years ago. Ron Kalifa, who is leading a review of the fintech sector for the UK government, emphasises how the fallout “is going to open a hornets’ nest in terms of global regulation”. (From Financial Times, 6 July 2020)

‘Bank of Mum and Dad’ lending to surge by £700m for first-time buyers 
The pandemic has caused a spike in lending from the ‘Bank of Mum and Dad’ as first-time buyers are forced out of the housing market and lenders request much higher deposits. According to a forecast by estate agency Savills, loans from parents and grandparents will surge by 14% this year due to the pandemic – equivalent to an additional £700m in 2021 compared to 2019. By 2022, Savills predicts that ‘Mum and Dad’ lending will total £5.8bn and account for 42% of mortgaged first-time buyers. (From The Telegraph, 5 July 2020)

UK’s big accountancy firms ordered to separate audit practice 
The UK’s “big four” accountancy firms have been ordered to ring fence their auditing business as part of a drive to improve oversight of corporate finances. The Financial Reporting Council, the sector’s regulator, has given Deloitte, PwC, KPMG and EY until 2024 to implement actions outlined in its latest recommendations to improve standards in the sector. The move follows criticism of the big four’s involvement in a string of high-profile corporate collapses in recent years, including Wirecard, Carillion, Thomas Cook and BHS. The rules will not apply to so-called mid-tier firms, such as BDO and Grant Thornton. (From The Guardian, 6 July 2020)

First signs of M&A deals after months of inactivity 
After an almost total halt in M&A activity for three months, private equity investors and bankers say they can feel a ‘tangible change’ in market sentiment. Daniel Connolly from William Blair & Co says this is caused by people thinking “there is an opportunistic window between now and the elections to buy and sell quality assets”. The biggest sectors where buyers and sellers are looking for deals include: healthcare, technology, food and agricultural products, business services and some industrial sectors. However, sales processes are currently more selective than broad-based auctions, inviting only a small number of potential buyers, and those sealing deals in the current environment often have to rely on video due diligence and virtual data rooms. (From Private Equity News, 7 July 2020)

Virus crisis expected to ‘level down’ UK economy  
The Social Market Foundation think tank (SMF) has warned that the pandemic could “level down” the UK economy with certain regions expected to bounce back more quickly following the pandemic. While sectors including finance and construction will be significantly affected – meaning London and the South East will initially be the worst hit – other areas such as Hull and Bradford will face a slower recovery overall. SMF researcher Amy Norman comments that “policy makers need to recognise that national or even regional data can conceal the local realities of this recession and should not rely on it when making important decisions for the recovery from coronavirus.” (BBC News, 6th July 2020)

 

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