Capital Markets Corporate

July 31, 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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European banks brace for large loan losses 
European banks are facing as much as €800bn in loan losses and a €30bn hit to their revenue over the next three years as a result of the coronavirus crisis. The fears are being partly driven by concerns over businesses ability to repay loans taken out to boost shortterm cash flow to replenish income lost due to strict lockdown measures to stop the spread of Covid-19The warning comes as European banks booked large loan loss provisions in this week’s Q2 earnings reports, with Barclays and Lloyds setting aside an extra £3.7bn and £2.4bn respectively to cover losses from delinquent loans. (From FT26 July 2020) 

Mortgage approvals quadruple in just a month 
The number new mortgage approvals in the UK quadrupled over the last month, rising to 40,010 in June, up from 9,273 in May. The sharp rise is partly driven by the reopening of the UK’s housing market in May, as buyers resumed purchases previously put on hold. The Government’s decision to increase the Stamp Duty threshold to £500,000 may stimulate a sudden burst of demand in the property market, likely causing the number of mortgage approvals to rise even further in July. (From Reuters, 29 July 2020) 

Private equity firms return to leveraged debt market deals 
Private equity-owned companies have turned to the leveraged debt market for deals that will lead to dividend recapitalisation, where a portfolio company borrows more in order to return money to their owners. Debt-funded pay-outs to shareholders were popular with buyout firms prior to Covid-19, however critics point out that doing this priortises pay days over a company’s health which can have a big impact on these firms, especially in the current uncertain markets. (From Bloomberg, 28 July 2020) 

UK’s biggest pension fund begins fossil fuels divestment  
Nest (National Employment Savings Trust), the UK’s biggest pension fund, is to begin divesting from fossil fuels and will ban investments in any companies involved in coal mining, oil from tar sands and arctic drilling. The ban will mean that some of the world’s biggest mining companies, such as BHP, can never be part of Nest’s share holdings as long they derive profits from digging coal. In addition, Nest will be investing £5.5bn into “climate aware” investments as it anticipates a green economic recovery from coronavirus. (From The Guardian, 29th July 2020) 

FCA sets out fresh best practice guidance for vulnerable customers
The FCA has issued new guidance in its latest consultation paper to help firms protect vulnerable customers. The guidance is split into four parts: understanding the needs of vulnerable customers; skills and capability of staff; taking practical action; and monitoring and evaluation. This follows the finding that almost half of UK adults (24.1m people) display at least one vulnerable characteristic according to the regulator’s Financial Lives survey, increasing the necessity for firms to act with appropriate levels of care, especially after the Covid-19 pandemic. (From Professional Adviser, 29th July 2020) 

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