Category: Worldwide

Property experts are reporting the first fall in the price of buying a home in Scotland since the market was disrupted by Covid.

Most chartered surveyors told their trade association that they had seen prices going down since April.

The Royal Institution of Chartered Surveyors (RICS) last reported such a decline in June 2020.

Last week Nationwide said UK house prices dropped at their fastest annual rate for 14 years in July.

Higher interest rates have made mortgages more expensive in recent months, while rising prices have hit people’s spending power.

When RICS last reported a price decline three years ago, showings were not allowed due to the pandemic and there was widespread economic uncertainty about jobs and incomes.

Over the three months to July, it said every other part of Britain had a more negative opinion about prices while there was a less negative response in Northern Ireland.

The survey found a sharp deterioration in the price outlook for three months ahead, and in the number of transactions.

As interest rates have risen steadily over the past 20 months, the number of prospective buyers coming into the Scottish homes market is down, according to a clear majority of RICS surveyors. 

More were reporting a negative outlook than at any time since the middle of last decade.

Although this way of measuring market sentiment shows how opinion is shifting, the figures do not show how much prices or the number of transactions has been falling, or are expected to fall.

Comment from surveyors pointed to the increased cost of borrowing money for mortgages as the main cause of the market slowdown.

Alan Kennedy, of Shepherd surveyors in Fraserburgh, said higher interest rates had “stifled market activity, though demand still exceeds supply in some sectors”.

If demand outstrips supply, that can sustain prices or even push them up, despite borrowing costs going up.

Craig Henderson, of Graham & Sibbald in Ayrshire, said: “The ongoing inflationary pressures are causing buyers to think long and hard over any purchase decision. 

“Prices are holding up, so far in this area, but where they go later in the year will depend on the costs of borrowing and ongoing inflation. Caution is at the forefront of most of the market.” 

Greg Davidson, of the same company in Perth, added: “There remains hesitancy in some sectors of the market due to increased costs, but the underlying market seems to be stable. 

“There continues to be a lack of supply in some key areas within the country house market and demand still outweighs supply.” 

Simon Rubinsohn, chief economist at RICS, said pressure on buyers was extending to renters, who were also finding that supply was failing to match demand for property leases.

He added: “Demand shows no signs of letting up, supply remains constrained and that means rents are likely to continue rising sharply despite the cost-of-living crisis.”

The most recent figures from Registers of Scotland for actual transactions in Scotland shows an increase in prices by 3.2% over the year to May, taking the average house price to £193,000. At the same time, UK house prices increased by 1.9%.

But a different take on the market, published on Monday by Halifax, the biggest mortgage lender with its own House Price Index, showed Scottish prices down by 0.7% in the past year, while UK prices were down 2.4%.

August last year was seen as the peak for the market, after annual inflation in prices had risen above 12%. So the fall in prices now do not cancel out the sharp increases that followed the pandemic. 

Pent-up demand for homes after the market re-opened reflected a desire for more space following lockdown. And with more people working from home and no longer commuting regularly, there was demand for homes further from cities.

In the new-build market, the major housebuilders have been reporting to investors on a softening market, with rising construction costs. Several are cutting back on plans for the number of homes they are building.

Bellway said on Wednesday that completions are expected to fall, and the buyer reservation rate for new homes is down by 28% this year, to 156 per week.

Meanwhile, Taylor Wimpey recently reported that it sold 5,120 flats and houses in the first half of this year, down by quarter on the same period last year, while profit margins were cut by nearly a third.

The average price for its sales was up by nearly 7% on last year, to £320,000.

Persimmon Homes reported new house completions across the UK in the first half of this year were down by more than a third on the same part of last year. 

Pre-tax profit for that period were down nearly two-thirds.

A spokesman for trade body Homes for Scotland said Scotland’s market had held up well in “clearly challenging” conditions.

He said: “Our key concern relates to the shortfall of more than 114,000 new homes that has accumulated since 2008, in the wake of the financial crisis.

“With latest statistics showing the number of new starts on a worrying downward trend and a near 50% drop in the number of major residential planning applications compared to pre-Covid levels, Scotland’s housing crisis looks set to worsen.

“We need urgent action on planning, a joined-up approach on the transition to net zero and support for both first-time buyers and small and medium-scale home builders.”

While those wanting to get on the housing ladder will welcome a fall in prices, owners and property agents will be relieved to see mortgage rates falling, easing the downward pressure on prices.

Even though there could be another rise in the Bank of England base rate, money markets are pricing in a fall over the term of fixed rate mortgages, which is being reflected in the longer-term rates at which lenders are funding their products. 

On Wednesday, Halifax – the biggest mortgage lender, part of Lloyds Banking Group and supplier of mortgage products to Bank of Scotland – joined several other major lenders with a rate cut.

Reference: https://www.bbc.com/news/uk-scotland-66456354

The European Central Bank (ECB) has raised interest rates in the eurozone once again, taking its key rate to a record high last seen in late 2000.

The bank raised the deposit rate in the 20-nation bloc for the ninth time in a row – to 3.75%, up from 3.5%.

The ECB said inflation continued to ease, but was still expected to remain “too high for too long”.

On Wednesday, the US central bank raised rates to their highest level in 22 years in its bid to control prices.

In the UK, where inflation fell to 7.9% in June, the Bank of England’s base rate is at 5%, At its next decision on 3 August, the Bank is widely expected to raise rates to 5.25%.

The idea of raising rates is to make the cost of borrowing more expensive and so decrease demand and make price rises more difficult to pass on. 

As in other regions, the eurozone has been hit by rising food and energy prices that have weighed on households.

Inflation in the eurozone is running at 5.5%. Food price inflation has continued to slow but was still at 11.6% in June. 

The ECB said it was determined to ensure inflation returned to its 2% medium-term target in a “timely manner”.

The eurozone fell into recession last winter, revised figures showed recently, as consumers were hit by rising prices.

The eurozone economy contracted by 0.1% between January and March, after also shrinking in the final three months of 2022.

The ECB said on Thursday that developments since its last meeting supported the expectation that “inflation will drop further over the remainder of the year but will stay above target for an extended period”. 

It added that previous rate increases were showing signs of working and were “increasingly dampening demand, which is an important factor in bring inflation back to target”. 

However, it added: “While some measures show signs of easing, underlying inflation remains high overall.”

High inflation and higher rates were dampening spending so that the “near-term economic outlook for the euro area has deteriorated, owing largely to weaker domestic demand”.

The bank said this was affecting manufacturing output in particular, which was also being held down by weak demand from abroad. 

However, it said: “Over time, falling inflation, rising incomes and improving supply conditions should support the recovery.”

Reference: https://www.bbc.com/news/business-66329704

The news is full of emergency meetings, central banks offering credit lifelines and tumbling bank shares.

No wonder people are asking: is this the start of another financial crisis?

Politicians, including the UK prime minister, and central banks, say the situation is now stable. But banking shares have continued to fluctuate.

So how bad is this and what does it mean for you?

What is happening with banks and are they collapsing?

In the US, regulators have shut down and sold three mid-size US banks since the beginning of March – Silicon Valley Bank, Signature Bank and First Republic. The failures are the biggest to hit the US since the 2008 financial crisis. 

In Europe, troubled Swiss giant Credit Suisse, a major global player, is being taken over by rival UBS in a forced rescue deal. 

The collapses came after customers worried about the safety of their funds withdrew their money en masse.

Central banks responded to the crisis with measures to make extra cash available to make sure financial transactions continued as normal. 

That is the kind of action that was taken during the financial crisis in 2008 and at the start of the pandemic, designed to shore up confidence and make sure banks can still make loans and pay out to customers who want to take their money out.

As fears have eased, some of those measures have been wound down.

Are UK banks at risk?

Bank shares have certainly had a wobble, as confidence was shaken.

Both UBS and Credit Suisse have London operations, managing money for wealthy clients and advising on mergers and investments and there may be some job losses where the two banks’ businesses overlap.

But there is no reason to expect any further direct impact on UK banks, from either Credit Suisse’s demise, or the collapse of the smaller US lenders.

“The UK banking system remains safe, sound and well capitalised,” a UK spokesperson for the Treasury said in a statement following the First Republic failure on 1 May. The spokesperson called the collapse “a matter for US authorities”.

Why is this happening now?

The turmoil is part of the fallout after central banks, including in the US and UK, raised interest rates sharply last year to try to dampen down rising prices.

After years of very low interest rates, that has come as a shock.

Banks holding debt issued when interest rates were lower have seen the value of those assets tumble.

When customers panicked and started taking out their money, their balance sheets were not strong enough to withstand the moves. 

Silicon Valley Bank, which catered to the tech industry and was hurt as the sector slowed, sparked the fears when it revealed in March it needed to raise money. The worries spread, taking down Signature Bank a few days later and eventually First Republic. 

Credit Suisse had problems all of its own – missteps over risk management going back years, scandals it was caught up in, including money laundering, and last year it reported a heavy loss.

But it too found itself in a sudden downward spiral in March, as worried customers shifted funds to other banks – despite it receiving a $50bn (£41bn) emergency lifeline from the Swiss National Bank.

Is my money safe?

Ordinary people have little reason to fear for their funds. 

In the highly unlikely scenario that a bank or building society actually collapses, then deposit protection is in place.

In the UK, that means £85,000 per person, per institution is protected (or £170,000 in a joint account). So, if you have £85,000 in one bank, and another £85,000 in a separately licensed bank, then it is all safe if both went bust, under the Financial Services Compensation Scheme. There is also a higher temporary limit of £1m for six months, if you get a sudden influx of funds, such as an inheritance.

Protection is similar in the EU, and the US government has safeguarded deposits of up to $250,000 for a long time. In the wake of the crisis, US officials have proposed increasing protection for business accounts. 

Is this a banking crisis like 2008?

There doesn’t appear to be the same system-wide problem that there was in 2008, when banks around the world suddenly found they were exposed to rotten investments in the US housing market.

That led to enormous government bailouts and a global economic recession.

Since then, banks have been ordered to hold more capital and regulations around risk have been tightened. So most experts believe the impact of these current troubles will be contained.

Still, the world of banking is extremely complicated. It can be hard to identify where new fragilities might lie, until the system comes under pressure, as it did when Liz Truss’s government surprised the markets with its new economic strategy in September, and as it is now with higher interest rates, and wavering confidence.

Moreover, nervousness around the health of banks is often contagious. And if people start to worry about their deposits they can move them at the click of a mouse.

Even if we don’t see the total breakdown in trust that characterised the financial crisis, we could still see regulators toughening up the rules further and banks pulling back on their willingness to lend.

That could put a chill on the global economy, at a time when it could do without it.

Reference: https://www.bbc.com/news/business-64951630

US regulators are seeking to ban Binance, the world’s largest crypto trading platform, alleging that the firm has been operating in the country illegally.

The lawsuit from the Commodity Futures Trading Commission (CFTC) said the firm cultivated US business while failing to register properly with authorities.

It accused Binance of breaking numerous US financial laws, including rules intended to thwart money laundering.

Binance defended its practices.

It said it had made “significant investments” to ensure that US users were not active on the platform, including blocking users identified as American citizens or residents, or who had a US mobile number.

“This filing is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the US and around the world,” the firm said.

“The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”

Founded in 2017, the company is now the world’s largest centralised exchange for digital assets, claiming more than 100 million users globally. It is led by Chinese-born Canadian billionaire Changpeng Zhao, who was also named in the complaint.

The CFTC said Binance had been active in the US since 2019, but never properly registered with the government or complied with relevant US laws, using an “intentionally opaque” global corporate structure in a bid to escape oversight.

For much of that time, Binance did not not require its customers to provide any identity-verifying information before trading on the platform, the CFTC alleged in the civil lawsuit, filed in federal court in Illinois.

In 2021, the firm announced it was tightening its rules. But at the same time, the CFTC said it advised US-based customers on how to evade those controls using virtual private networks (VPNs) and shell companies.

The firm evaded the rules “to maximize corporate profits,” the CFTC said.

It asked the US court for restitution and fines, as well as permanent trading and registration bans.

CFTC chairman Rostin Behnam said the government filed the case to protect American investors and it should serve as a wider warning to those working in the crypto sector.

“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning that the CFTC will not tolerate wilful avoidance of US law,” he said.

Around the time the lawsuit was announced, Mr Zhao posted on Twitter a message that read “4” – apparently referring followers back to advice in an earlier post urging people to “ignore …. fake news, attacks, etc.”

After several years of explosive growth, the crypto industry has been struggling with a sharp decline in prices, as well as increased scrutiny from regulators.

Last year, US officials warned the industry that they planned to use existing laws to more rigorously enforce against issues such as conflicts of interest and lack of transparency.

In October, the CFTC said more than 20% of the cases it had pursued in the 12 months prior concerned the sector, including cases against Bitfinex and Tether. It is also among the agencies in the US that has brought fraud charges against Sam Bankman-Fried and FTX, previously a major rival to Binance.

Switzerland’s biggest bank, UBS, is in advanced talks to buy all or part of its troubled rival Credit Suisse.

Credit Suisse, the second largest Swiss bank, is facing a crisis of confidence and its shares have fallen sharply in recent days, sending ripples of concern through the markets.

According to the Financial Times UBS is offering to pay up to $1bn (£820m) for Credit Suisse.

Regulators are trying to facilitate a deal before markets reopen on Monday.

The trouble at Credit Suisse, combined with the failure of two smaller US banks during the last two weeks, have thrown the health of the global financial system into doubt.

Credit Suisse is one of around 30 banks worldwide deemed too big to fail because they are of such importance to the banking system.

But the 167-year-old institution is loss-making and has faced a string of problems in recent years, including money laundering charges.

An emergency $54bn (£44.5bn) lifeline from the Swiss National Bank on Wednesday failed to reassure markets and Credit Suisse shares tumbled 24%, prompting a wider sell-off on European markets.

A deal could be signed as soon as Sunday evening, according to the FT, which first reported that regulators and the Swiss National Bank were facilitating talks between the two Swiss banking giants.

The deal currently believed to be on the table would value Credit Suisse shares at less than a seventh of the price they were on Friday. However the FT said terms could change and a deal had not yet been reached.

UBS shareholders would normally have six weeks to consider a deal on this scale, but the FT says the Swiss authorities are planning to change the country’s laws to bypass a shareholder vote on the transaction.

Bank of England officials have confirmed they are in close contact with their counterparts at the Swiss National Bank while regulators and management discuss Credit Suisse’s future. The UK Treasury is also monitoring the situation.

Is this a banking crisis – how worried should I be?

The deal would amount to a significant intervention from the Swiss authorities, said Mohammed El-Erian, chief economic advisor to German financial services firm Allianz.

“This is not a voluntary action, this is a shotgun wedding and it’s being done in order to restore financial stability,” said Mr. El-Erian. “Without it Credit Suisse may end up in a death spiral, in which it finds it much harder to undertake its banking activities.”

“That could raise questions about other banks at a time when there are also banking concerns in the United States.”

Mr El-Erian said the current turmoil could lead to banks becoming more “risk averse”, leading to a fall in credit availability.

But that amounted to a “headwind” for the global economy, rather than something like the sudden stop experienced during the 2008 financial crisis, which was “in a completely different league” to today’s problems, he said.

UBS is said to have asked the Swiss government to cover about $6bn (£4.9bn) in costs if it were to buy Credit Suisse, according to sources quoted by Reuters.

Credit Suisse reported a loss of 7.3bn Swiss francs ($7.9bn; £6.5bn) in 2022 – its worst year since the financial crisis of 2008 – and has warned it does not expect to be profitable until 2024.

UBS, however, made a profit of $7.6bn in 2022.

Any deal may also result in significant job losses.

As well as being a domestic bank with 95 branches, Credit Suisse has a global investment banking operation and manages the assets of rich clients.

At the end of last year Credit Suisse had a global staff of 50,480, including 16,700 in Switzerland, though 9,000 jobs were to be axed, the Swiss broadcaster SRF reports.

Reference: https://www.bbc.com/news/business-65004605

Silicon Valley Bank collapsed with astounding speed on Friday. Investors are now on edge about whether its demise could spark a broader banking meltdown.

The US federal government has stepped in to guarantee customer deposits, but SVB’s downfall continues to reverberate across global financial markets. The government has also shut down Signature Bank, a regional bank that was teetering on the brink of collapse, and guaranteed its deposits.

In a sign of how seriously officials are taking the SVB failure, US President Joe Biden told Americans Monday that they “can rest assured that our banking system is safe,” adding: “We will do whatever is needed on top of all this.”

Here’s what you need to know about the biggest US bank failure since the global financial crisis.

What is Silicon Valley Bank?

Established in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. It provided banking services to nearly half of all US venture-backed technology and life science companies.

It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom.

SVB benefited hugely from the tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.

The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements. Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. Its global headcount more than doubled.

Why did it collapse?

SVB’s collapse came suddenly, following a frenetic 48 hours during which customers yanked deposits from the lender in a classic run on the bank.

But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.

What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.

When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.

At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding.

That forced companies to draw down on deposits held by SVB to fund their operations and growth.

What sparked the bank run?

While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances.

That set off panic among customers, who withdrew their money in large numbers.

The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it as investors began to fear a repeat of the global financial crisis a decade and a half ago.

By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.

What about depositors and investors?

US regulators said Sunday that they would guarantee all SVB customers’ deposits. The move is aimed at preventing more bank runs and helping tech companies to continue paying staff and funding their operations.

The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place mean that we’re not going to do that again,” Treasury Secretary Janet Yellen told CBS in an interview Sunday.

“But we are concerned about depositors and are focused on trying to meet their needs.”

Will this trigger a banking crisis?

There are already some signs of stress at other banks. Trading in First Republic Bank (FRC) and PacWest Bancorp (PACW) was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab (SCHW) stock was down 7% at 11.30 a.m. ET Monday.

In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.

SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value.

At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.

In a sign that regulators have concerns about wider financial chaos, the Fed said Sunday that it would make additional funding available for eligible financial institutions to prevent the next SVB from collapsing.

Most analysts point out that US and European banks have much stronger financial buffers now than during the global financial crisis. They also highlight that SVB had very heavy exposure to the tech sector, which has been particularly hard hit by rising interest rates.

“While SVB is a major failure, [it] and other niche players like Signature are quite unique in the broader banking world,” research analysts David Covey, Adrian Cighi and Jaimin Shah at M&G Investments commented in a blog post on Monday. “So unique, in our view, that it is unlikely to create material problems for any of the large diversified banks in the US or Europe from a credit point of view.”

Why did HSBC buy the UK business for £1?

HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender.

Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.

The HSBC rescue is “fantastic news” for the UK startup ecosystem, said Piotr Pisarz, the CEO of Uncapped, a financial tech startup that lends to other startups. “I think we can all relax a bit today,” he told CNN.

In a statement, HSBC CEO Noel Quinn said the acquisition “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally.”

Reference: https://edition.cnn.com/2023/03/13/investing/silicon-valley-bank-collapse-explained/index.html