1. London banks contemplate relocation
The head of the British Banking Association (BBA) has claimed large banks could start leaving London for fear of Britain’s future relationship with the EU after Brexit. Anthony Browne said “their hands are quivering over the relocate button”, suggesting plans are already in place to move significant parts of these firm's operation to Europe within the next few months. Frankfurt, Paris, Dublin and other European cities have been busy pitching their town to City bankers.
One of the key benefits of the EU’s single market for banks is 'passporting' - this allows banks to sell their services freely in all parts of the EU without establishing a local office. If Britain is to pursue a hard Brexit, there is no guarantee this privilege will be maintained and this could potentially cripple the UK’s banking industry. As a result, leading banks have started drawing up plans to move away from the British capital - it’s suggested Goldman Sachs could move 2,000 employees from London to a location within the EU.
Many suggest Browne’s comments were aimed at putting pressure on the Conservative Government to clarify their position on Brexit and the tactics for upcoming negotiations. London is a very popular city among bankers and a financial hub - it is a big decision to move away.
Questions to ask yourself… Is it possible for Britain to maintain the same access to the single market outside the EU? Who loses out if top banks move to other parts of Europe?
2. "Pound still not cheap" - Goldman Sachs
Goldman Sachs has claimed the pound is still overvalued, despite falling 15% since Britain voted to leave the EU. The investment bank claims sterling is still 10% overvalued and will drop further over the next few months. At the time of writing, the pound was worth $1.22 but many believe it will fall as low as $1.15 by the end of the year. However many argue the pound is actually very cheap
This broad range of opinion is largely due to standard valuation methods being unable to account for the impact of an event like the EU Referendum. Standard models, like GSDEER (Goldman Sachs Dynamic Equilibrium Exchange), estimate fair value for a currency, which are effectively long-term moving averages - predicting the effect of a trend once it has already started. However this cannot account for the impact of short-term shock caused by something like the leave vote.
It was suggested last week that most brands are going to raise their prices by at least 5% due to the increase in import costs caused by a fall in the value of the pound. Microsoft has revealed they will raise prices by up to 22% due to the weak pound, which will have a big impact on business as well as the Government.
Questions to ask yourself… What needs to happen for the pound to start rising in value again? Which industries are benefiting from the lower value of the pound?
3. Record high employment
The number of people employed in the UK reached almost 32 million in August, figures from the Office of National Statistics (ONS) revealed last week. The number of 16 to 65 year olds in employment or full-time education held at 74.5%, despite fears surrounding the job marker after the leave vote. There was also a rise in wages - from 2.1% in the previous month to 2.3%. This was welcome news for the British economy but there's reason for caution as income in real terms is likely to decrease in the coming months due to rises in inflation.
A study by the British Chamber of Commerce (BCC) found employers were increasingly worried about the future and planned to scale back future hiring. Figures from the last three months show a slight increase in people registering for unemployment and it’s predicted this will get worse as the impact of the leave vote takes full effect. If job creation is stunted due to fears about the future, it will have a long term effect on the economy and youth unemployment.
Questions to ask yourself… What can the British Government do to encourage job creation? How will curbing free movement of people impact the job market?
4. Morgan Stanley’s record profits
Morgan Stanley has announced third quarter profits which beat expectations, boosted by a sharp increase in bond trading. Net income rose to $1.6 billion from $1 billion in the previous quarter, with income from bond trading almost doubling. The asset management firm has restructured its bond trading division, cutting costs and around 25% of their workforce, which also led to increased profits. Revenue rose 15% to $8.91 billion, which easily beat analysts prediction of $8.17 billion for the quarter.
The previous quarter was surprisingly strong for US banks across the sector. An increase in bond trading was sparked by Britain’s decision to leave the EU and anxiety about monetary policy around the world. On Wall Street, new capital rules had previously slashed trading profits and led to major banks cutting staff, but the most recent quarter saw activity bounce back.
Questions to ask yourself… What would typically cause an increase in bond trading? Should investment banks be regulated more by the authorities?
5. MPs vote on Green's knighthood
Last week, MPs unanimously agreed on a motion to strip former BHS boss, Sir Philip Green of his knighthood. Politicians branded him the unacceptable face of British capitalism and an asset stripper after his role in the fall of BHS - creating a £571 million pension deficit and leaving 11,000 unemployed. Green is said to have paid himself and his family huge dividends while in charge of BHS, before selling it on the verge of collapse for £1.00. A parliamentary report claims his actions directly led to the department store's collapse, which could have been avoided. The billionaire has said he would attempt to deal with the pension deficit but there has been no concrete plan or payment put forward by Green to date.
The motion is non-binding and any final decision will be taken by the Honours Forfeiture Committee. However, after the motion in Parliament it's highly unlikely Green will keep his knighthood.
Question to ask yourself… Should MPs have the power to remove knighthoods? How will stripping Green of his title impact his business ventures?
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