The return of the old normal is boosting bank profits, says ALEX BRUMMER
The eurozone economies may be in the doldrums, but the continent’s biggest banks, like their British counterparts, are living on a high.
Normalized interest rates boost revenues and profits.
Without having to work extra hard, Lloyds here in Britain, Spain’s Santander and even the sub-octane Deutsche Bank are delivering results.
Despite the weakly growing British economy and the recession in Germany, bad debts are currently under control.
Closures: Lloyds Bank will close 18 locations, with 15 branches in Halifax disappearing and two Bank of Scotland branches also being closed. The companies are all part of Lloyds Banking Group
Plus, the city’s resident bankers have something to celebrate.
The Bank of England has taken advantage of Brexit freedoms by lifting the EU-imposed cap on bankers’ bonuses.
Not much of Liz Truss’s ill-fated stewardship of Britain remains intact, but this is a proposal that has not been reversed by Jeremy Hunt. The banks are making billions in profits: Lloyds made £4.3 billion in the last nine months. So the political timing is not ideal.
This is especially true when much of the country is experiencing an inflation shock and another winter of higher energy bills lies ahead.
If there was ever a time when compliant remuneration committees at Britain’s big banks have a responsibility to curb excesses, it is now.
NatWest in particular must claw back some of the £11m from ousted CEO Dame Alison Rose who so mishandled Nigel Farage’s canceled account at Coutts. The optics of lifting the bonus cap may look bad, but it is crucial if we are to sustain Britain’s role as a leading financial centre.
It should help thwart French President Emmanuel Macron’s attempts to lure financiers to Paris with champagne and tax breaks.
Britain’s top bankers will benefit from this. The aim is to ensure that London remains a magnet for the best and brightest investment bankers from Goldman Sachs, JP Morgan, Morgan Stanley and the like.
There are also good legal reasons to support the change. Under the ceiling imposed by Brussels, bonuses are limited to twice the basic salary. This has had the disruptive effect of increasing fixed costs and separating them from performance.
The other element of the Truss reforms was to reduce the top income tax rate from 45% to 40% in order to unleash entrepreneurship.
As a result of the freeze on benefits, more residents have ended up in higher tax brackets. Over to you Chancellor.
IMF boss missing
International Monetary Fund (IMF) Managing Director Kristalina Georgieva was largely absent from action as the Oct. 7 atrocities in Israel and the military response unfolded during the fund’s annual meetings in Marrakech, Morocco.
Now she has turned up at ‘Davos in the Desert’ in Riyadh and says the fire is ‘even more jitters’ for an anxious world.
She added that for Egypt, Lebanon and Jordan, the impact in terms of tourism and investment is already clear.
That’s all very useful, but more fascinating is what Georgieva didn’t say.
There was no reference to Israel, where the terrorist attack and the 7/10 war have already undermined the country’s creditworthiness, while S&P Global has placed the country on a ‘negative’ watch list.
The credit agency warned that the war between Israel and Hamas could damage the country’s economy and security.
She also made no reference to her host Mohammed bin Salman’s (MBS) responsibility for the uncertainty. Rising oil prices, which threaten the cost of living in the West, could push interest rates higher.
They are the result of both production restrictions in Saudi Arabia and the conflict in the Middle East.
It was left to JP Morgan boss Jamie Dimon to urge MBS not to abandon the American-led initiative to establish official ties with Israel. Not difficult, right!
GSK is moving forward
GSK’s pioneering work in vaccines, including jabs for shingles, cervical cancer and HIV, has few equals, despite its problems with Covid.
The next big hope focuses on respiratory disease, a major killer of the elderly. It has announced ‘positive’ results for its RSV vaccine among people aged 50 to 59.
This is in addition to the success it has had with over-60s in the US, Europe and Japan. CEO Emma Walmsley’s vision of a thriving, standalone pharmaceutical and vaccine innovator is becoming a reality.
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