Market News

HSBC Fined £10.5 million for NHFA’s inappropriate advice to the elderly

News just in. HSBC has just been handed a £10.5 million fine from the FSA for giving poor advice to the elderly. This is the biggest fine ever given to retail bank by the FSA. Further to this fine HSBC is expected to have to pay out a total of £29.3 million to resolve the whole issue.

The inappropriate advice was given by on of HSBC’s subsidiaries, according to the FT today. The subsidiary under the spotlight is NHFA Limited who advised 2485 customers between 2005 and 2010 to invest in asset-backed investment products.

The problem was that for many of the people receiving investment advice, their life expectancy was already below that of the period for a return on the investment (typically 5 years). Many customers were forced to make early withdrawals which led to a rapid reduction in their capital investments.

In an independent review of investment advice it was found that 87% of customers had been given unsuitable advice, or at least had made unsuitable investment decisions for their own personal situation.

Also the FSA have said that it appears that NHFA advisers did not take into account the tax status of investors before giving their financial advice.

Elderly customers at most risk

The NHFA had a very old customer base, with an average age of 83 years. This meant that there was a much greater risk of the investment vehicles that were being sold would be unsuitable, as it is generally expected that most of the investors will not live until the end of the period.

The total investments declared inappropriate by the FSA came to £285 million, which represents around £115,000 per investor.

Beach of Principle 9

The FSA have stated that the failing were in breach of “principle 9” which should ensure that investment advisers consider the personal circumstances of an investor before making a recommendation.

HSBC have taken action to correct the mistakes made and the NHFA has been closed to new business since July 2011.

Warning to Investment Advisers

Tracey McDermott, the acting director of enforcement and financial crime at the FSA has said that this fine will hopefully set an example to other investment advisers;

“This penalty should serve as a warning to firms that they must have the right systems and controls in place to manage and identify risks when they acquire new businesses. A failure to do so can lead not only to detriment to their customers but to significant reputational and regulatory cost.” Tracey McDermott, FSA, 2011.

Retail Crisis Deepens as Arcadia Announce Job Cuts

Arcadia, the parent company of many popular high street stores such as Top Shop, BHS, Burton, Dorothy Perkins, Wallis and Miss Selfridge, has announced that it will be closing up to 260 stores after seeing a 38% reduction in annual profits. The retail sector is still a long way from recovering from the global economic crisis and there is no sign of a let up any time soon.

Arcadia plans to allow store leases to run until their expiry. Arcadia has around 3,100 stores globally of which 2540 are in the UK and 580 are franchised stores spread across over 35 other countries, including a flagship Topshop store in New York.

Sales are down by around 4.4% this year across the board. Arcadia has around 450 leases due to expire in the next few years and so will be letting around half of these lapse. The shops making the biggest losses will be the ones that closed. Overall Arcadia has made a pre-tax loss of £253 million on sales of £2.6 billion.

“This is as tough as it’s going to be” ~ Sir Philip Green

Arcadia employs around 44,000 people in the UK and is one of the largest private employers in the country.

Weather Problems

As if all time high unemployment and increasing costs of living are not enough to contend with, the unexpectedly warm weather has also been blamed on reduced sales. Usually October and November see sales in winter clothing increase, however this year the warm weather has kept people out of the stores. There may be a surge in sales of woolly jumpers and warm coats over the Christmas period, but so far the early signs are not promising.

Sir Philip Green., CEO of Arcadia, told the BBC that £53 million was “lost” as it decided not to pass on the VAT increase to its customers. They have already closed 60 stores this year. He hopes that there may be other opportunities in the future.

Christmas Predictions

Sir Philip Green thinks that this will be another late Christmas for retailers with many shoppers looking for bargains in the sales rather than spending large amounts before Christmas.

Billionaire Sir Philip Green owns Arcadia through Taveta Investments Ltd.

More from the BBC: Arcadia set to close up to 260 stores as profits fall

Thomas Cook shares plummet on debt Worries

This morning Thomas Cook share price has fallen sharply after the announcement that it has suffered a “deterioration of trading in some areas of the business” and is in talks with its lenders to secure additional loans to cover operating costs.

Currently Thomas Cook is seeking a further £100 million just 32 days after already receiving the same amount. Thomas Cook has no defaulted on any loans and has said that it just wishes to raise more capital for improved cash flow. Its CEO, Sam Weihagen, says that Thomas Cook is robust business with a great future.

Thomas Cook has approached partners in commercial airspace to sell its stake in National Air Traffic Services (NATS) to raise around £60 million.

The Arab Spring has affected Thomas Cook badly as many of its popular holiday destinations are in Tunisia and Egypt. Thomas Cooks owns many hotels and provides package holidays to this region which are usually very popular for those seeking winter and late Spring sunshine.

Also the severe flooding in Thailand caused a huge fall in demand for trips to one of its most lucrative regions.

The Eurozone crisis has also resulted in a downturn in demand for European holidays to Greece as well as many other popular destinations. Travel to France and Belgium has also reduced. Many families are starting to cut back on holidays abroad, instead remaining in the UK for a “staycation” rather than spend limited household funds on family holidays.

Currently Thomas Cook’s net debt stands at £900 million, which consists of an existing £150 million loan and £850 million credit facility.

Overall a combination of political unrest, natural disasters and the economic downturn has contributed to Thomas Cook’s bad year.

Share price has now fallen 67.04% this morning and by 95% from its high point in January 2011.

Thomas Cook is not the only travel company to suffer, Tui shares have also fallen by around 67% this year.

Thomas Cook have delayed issuing their annual results until the discussions with its lenders are concluded, but do state that “The Company expects to report a headline operating profit for the year ended 30 September 2011 broadly in line with previous guidance” (Source: www.thomascookgroup.com)

Thomas Cook share price graph for 2011

Thomas Cook shares 2001. Source: Google Finance

Virgin Money Buy Northern Rock for £750 Million

News just in that Virgin Money has bought Northern Rock for £750 million. This means that Richard Branson is now a high street banking tycoon. Virgin Money have only bought the “good bank”, the government will keep the bad debts / “bad bank”.

George Osbourne said that the deal will be a good thing for British tax payers and families as it will provide renewed competition.

The headquarters for Virgin Money is also in Newcastle which will ensure that many if not all jobs will remain in Newcastle, certainly good news for employees and families.

At a time when some European banks could be at risk of nationalisation a British bank is being returned to the private sector.

The Government have still made a significant loss on this deal, having paid over £4 billion for the bank to save client investments.

Virgin Money currently specialise in home insurance, credit cards, pre-paid travel money cards, pensions, insurance and savings. This is certainly an exciting move for Virgin.

George Osbourne and the coalition government may have made a huge loss on the deal but it is thought that this is the best deal possible for the tax payer.

Northern Rock customers will be able to maintain their accounts, the rebranding of Northern Rock to Virgin Money will start in January 2012.

Reckitt Benckiser share price crashed today

The biggest news of the day is the shares in Reckitt Benckiser have fallen sharply. So far today (25th October 2011) shares have fallen by 121p down to 3,325p, a drop of 3.51%. The FTSE 100 has also seen a large overall fall today.

The reason for the drop stems from reforms in the US health care system which affect the pharmaceutical markets.

RB’s 3rd quarter earnings for 2011 have actually beaten forecasts, however, the remainder of 2011 and start of 2012 is going to be more challenging.

share price graph for Reckitt Benckiser Plc

Source: Google Finance

 

Drug Rebates under American Healthcare Reforms

Part of the problem is rebates to be paid out to US users who bought up Suboxone tablets in advance of an anticipated price increase. The health care reforms means that drug makers such as Reckitt Benckiser will have to help finance medicine for low income elderly and disabled clients on the Medicare health care system.

Reckitt Benckiser is also predicting an 80% reduction in American profits if a competitor starts selling an their own version of Suboxone.

The Suboxone Crisis

Suboxone is a pain reliever that is also treats additions. Its main function is to treat opioid addiction but it also works very effectively at treating moderate chronic pain which affects many disabled and elderly people.

As more people live to be older there are more cases of people suffering from chronic illness. The ever increasing obesity epidemic does not help matters either. The result is more people in need of medication to numb the pain that is a long life of ill health.

Reckitt Benckiser were the first to market the drug, originally under the names Temgesic and Buprenex. The actual drug is buprenorphine. This drug replaced Methadone as the main drug to treat addictions.

In short, the American health care reforms have turned a very profitable product into a costly, or at least less profitable, product for Reckitt Benckiser.

Web resources:

Euro Crisis – French Banks Downgraded – Emergency Talks – Not My Fault!

Some French banks have “enormous exposure” to the Greek debt problems. As a result Credit Agricole and Societe General have been downgraded. BNP Paribas is considering “massive restructuring” to reduce costs.

José Manuel Barroso, the European Commission President, has said that the current Eurozone crisis is a “fight for the future of the Euro itself“.

When I worked in “The City” as a corporate actions clerk (sorry, analyst) I worked for one of the French banks. All throughout the sub-prime disaster that toppled the mighty Lehman Brothers and helped to trigger a collapse of the world economic system my bank consistently said that they were in a strong position and immune to the problems because they had not invested in these debts.

Well, now it turns out that they were just fortunate for a while to have invested in different debts which took a little longer to default.

Soc Gen and BNP Paribas in Asset Sell Plan

BNP today announced plans to sell off EUR70 billion of “risk-weighted assets” . So far BNP is looking safe as it was not downgraded by Moody’s. However, Michael Hewson from CMC Markets thinks that is just a matter of time before BNP Paribas goes the same way as the other French banks.

French Bank Share Price Losses

Losses so far in the last 2 days:

The fear is that these French banks simply have no means to deal with the sudden and catastrophic Greek debt problem. Like any business that invests heavily in a risky and narrow field, a major economic problem quickly turns into a bigger financial crisis.

These banks may have mostly escaped the American sub-prime crisis of 2008 but they are now suffering from their own problems.

However, BNP Paribas estimates that it will suffer a EUR1.7 billion loss as a result of the Greek problem but as it has made a first half pre-tax profit of EUR7.4 billion it can cope with the losses. So although they are not immune to the global economy crisis they can still weather this storm better than some other banks.

The big question now is, what is next? Where will the next major crisis strike? Or is this marking then end of the global economic problems and the restructuring and reposition of assets across the world banking system is making a more solid and safer platform for future investments?

Quotes in first paragraph from the BBC News economics correspondent – if you know his name let me know!

Taylor Wimpey Says More Struggles Ahead

Taylor Wimpey, the result of the merger of Wimpey Homes and Taylor Woodrow in 2007, is expecting more struggles in the house building sector. CEO Pete Redfern explained that the merger led to a complex debt structure which has caused some financial issues within the organisation.

Taylor Wimpey have sold off their North American business to help pull in their structure and build some cash reserves. The deal was valued at around £1 nillion.

The new focus in the UK is on quality over quantity. Taylor Wimpey will be building homes with higher quality fittings and features to attract the wealthier home owners. Pete Redfern explains that he wants Wimpey Taylor to be the best housebuilder and is not interested in simply being the biggest house builder.

Quality also means winning the best sites to build on to ensure that the overall housing development is extremely desirable for new home owners.

Taylor Wimpey are also improving the whole client and partner services of their operations with an improved website portal.

Market conditions continue to be very slow so Taylor Wimpey are also looking to invest in long term projects which they can develop over time to provide a great return.

25% of Taylor Wimpey’s business is in London and the South East and so it plans to expand more into other British markets to spread its range and risk.

The market is still the slowest it has been since 1920. People are simply not looking to move house. Many people are sitting on negative equity as some house prices have fallen. Mortgages continue to be hard to agree for anyone but those in permanent and very well paid jobs.

Pete Redfern recently spoke with the FT, you can find the full interview here: video.ft.com/v/1091288197001/Pete-Redfern-of-Taylor-Wimpey-full-interview (registration required).

 

Northern Rock Looks Set To Make A Profit In 2012

Northern Rock’s CEO Ron Sandler is confident that the bank will be making a profit by 2012. He told the FT that they had reduced the losses “significantly” and that business was building up some momentum.

Northern Rock was the first bank to be rescued by the tax payer. In 2007 Northern Rock ran out of cash and panic set in immediately as investors flocked to branches all over the country to withdraw their money before it was too late.

In 2010 there was a major restructure at the bank whereby the “good” assets and “bad” assets were divided and managed separately. The good assets remained with Northern Rock and the poorly performing assets were moved into the Nothern Rock Asset Management division. The result is that the core business is now set to slowly build up again and recent trends are suggesting that a full turnaround is on the cards for 2012.

Northern Rock Takeover

Northern Rock is still a viable takeover target for several businesses including Virgin, JC Flowers. Northern Rock’s CEO has stated that a takeover offer would be seriously considered before any decision was ever made. Nothern Rock is still receiving government support for its operations, although the Asset Management part of the business is now making a profit.

What happens in to the future of Northern Rock could set a trend for other banks that have been bailed out, including Royal Bank of Scotland, Lloyds TSB and HBOS. Once the banks are making a healthy profit and share price improved the government may start to look to release some of the control and the equity to help pay off some of its debts.

HSBC Make £7 Billion in 6 Months and Cuts 30,000 Jobs

HSBC have had an unbelievable year so far with 6 month profits up by 3 percent to $7,000,000,000. However, they are cutting around 30,000 jobs globally.

Thankfully the UK is unlikely to get hit with the job cuts, it is thought that only around 700 jobs will go in the UK and many of these will be through natural reduction, e.g. retirement.

HSBC are making massive global cost cutting measures. Much of their strength still lies in Asia and they are likely to be streamlining services in this region.

HSBC’s dominance in Asia has provided it with a very large cushion to fall on in these tough economic times. Several of the banks that have weathered the storm well have a lot of influence in emerging markets and non-UK and American markets. Generally banks with the least exposure to the sub prime mortgage business seem to have done OK.

With profits of £7 billion (which is around US$11.1 billion) it is almost shocking to think that they feel it is still necessary to cut jobs. However, these huge profits and further cost reduction measures do mean that it is all good news for shareholders.

HSBC Share Price Shoots Up

On the back of this news investors are starting the week on a banking spending spree. At 11am share price is already up by 4.5% to 621.6p.

HSBC Sells Off Branches and Leaves Poland

As part of its global cost cutting programme HSBC is selling off 195 of its Upstate New York retail branches. They have agreed a deal with First Niagara Bank.

HSBC are also leaving retail banking in Poland with a closure of wealth management and retail banks. Stuart Gulliver, HSBC’s CEO has said that there will be other similar closures as HSBC withdraws from poorly performing economies to focus on their successes.

 

News International CEO Rebekah Brooks Has Resigned – Tom Mockridge Takes the Lead

The phone hacking scandal that his News of the World is spreading across the whole of News International with reports of the FBI investigating claims that families of victims of the 9/11 attacks had their phones hacked for stories.

Only yesterday Rupurt Murdoch said that Rebekah Brooks still had his full support, however, today she stepped down as CEO of the world’s largest news and media company.

This resignation does not remove her from investigations, she is still being called to answer questions from parliament and there is an ongoing police investigation into the allegations in the UK as well as the new FBI investigations in America.

The Sky takeover seems to now be officially off with no sign of any plans or agreements of a possible deal in the future. All parties is parliament agreed that the takeover had to be reviewed by the competitions commission in light of the recent phone hacking scandals.

Now the spotlight is moving on to James Murdoch to uncover his knowledge and involvement in the phone hacking. He is known to have sign off payments to the police, although in a television interview said that he never questioned why they were paying the police any sum.

Tom Mockridge is the new CEO of News International

Tom Mockridge who was CEO of Foxtel who started out with the Sydney Morning Herald has taken the role of CEO. Mockridge’s role with Foxtel, which was a join venture between News Corp and Telstra, involved working out solutions to overcome several regulatory hurdles. This could be a sign that News International are still planning a move on BSkyB.

No doubt there will be a lot more news on this story to come.