NatWest chair Howard Davies says Alison Rose was a ‘great leader’ amid Farage row; company insolvencies jump – business live

Time to recap, at the end of a dramatic week.

NatWest’s chair has said he will not quit over the row about the closure of Nigel Farage’s account.

Sir Howard Davies said he would continue to chair NatWest’s board to provide “stability” after the resignations of Dame Alison Rose, and the boss of Coutts, this week.

Davies also told reporters that political pressure had meant Rose could not continue, and that the bank had lost a ‘great leader’ in the early hours on Wednesday when she stepped down.

He was speaking after NatWest beat City expectations this morning, by posting operating profits of £3.6bn for the first half of this year.

The bank will pay £500m in dividends to its shareholders, meaning a £190m payday for UK taxpapers:

NatWest cut its forecast for its net interest margin (the gap between what it charges borrowers and pays savers); a sign that some people have been running down their savings or moving them to more lucrative accounts.

Farage has backed campaigner Gina Miller after Monzo ruled her True and Fair party’s bank account would close in September.

The number of firms falling into insolvency in England and Wales surged to the highest level for 14 years in the past quarter, according to Government figures.

The high court has dismissed a legal challenge by five Conservative-led councils against the expansion of London’s ultra-low emission zone (Ulez).

AstraZeneca has beaten profit forecasts, helped by strong sales of its anti-cancer drugs.

In the US, the PCE measure of inflation has fallen, as price pressures ease across the Atlantic, raising hopes of a soft-landing for the American economy.

The Bank of England has engaged Ben Bernanke, the former chair of the US Federal Reserve, to lead a review of forecasting at the UK central bank.

International Airlines Group, which owns British Airways, has announced record profits for the first half of 2023, with air fares up almost 10% on last year.

Several big lenders including Nationwide, HSBC and TSB have cut rates on their fixed mortgage deals in a sign that home loan costs may be close to peaking after surging to nearly 7%.

Here’s some reaction to the jump in company insolvencies in England and Wales in the last quarter, to the highest in 14 yers.

Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon, says:

“Quarterly company insolvencies reached over 6,300 for the first time since 2009 in Q2 as many businesses struggled to contend with a sustained mix of pressures.

“Although company insolvencies have been steadily increasing over the last 18 months, largely driven by Creditors’ Voluntary Liquidations (CVLs), in Q2 there was a significant uplift in the number of compulsory liquidations which rose 67% year-on-year.

“The current low-growth, high-inflation and relatively high interest rate environment has meant many businesses have faced building pressure over the last 12 months which is now translating into distress.

Jeremy Whiteson, restructuring and insolvency partner at Fladgate, says:

The increase in CVLs may reflect that many business have been ground down by a series of economic challenges which have hit in waves and eroded their businesses, leaving their owners with nothing to save - the pandemic, Brexit, labour shortages, the economic effects of the Ukraine conflict (leading to increased food and food costs) and now, rising interest rates. However, the increased costs of administrations, where additional regulation, aimed at protecting creditors by requiring more extensive reporting and consultation- may also have had the unintended consequence of putting these procedures beyond the reach of many businesses.

However, troubled companies with continuing business also seems to have been affected. Administrations (at 409) were a 30% increase on the preceding quarter (when there were 314) and a 34% increase on Q2 2022. This is the highest number since the beginning of the pandemic. CVAs were up even more. At 56 this was a 47% increase on the preceding quarter and a 75% increase on Q2 2022.

And here’s Lucy Fulmer, Director and Head of Creditor Markets at PwC:

“The high number of compulsory liquidations in Q2 of this year is striking - 637 compared to 382 in the same quarter last year. This is driven by an increase in winding up petitions - formal applications from creditors to shut down companies - which our data shows have more than doubled to 2,400 in the first half of this year compared to the same period last year. A lot of this increase can be attributed to HMRC returning to pre-pandemic levels of enforcement action.

“Consumer sentiment also remains a concern, particularly in the retail, food service and leisure industries, whilst the construction sector is grappling with credit risk brought about by inflationary pressure, labour shortages and increasing interest rates. The hospitality and leisure sector made up 17% of insolvencies in H1 2023, and increased by 38% compared to H1 2022. However, with the start of the summer holidays and energy prices falling, we hope to see the sector begin to recover as the year progresses.”

28 Jul 202309.56 EDT

Zoe Wood

Elsewhere in the banking sector, several big lenders including Nationwide, HSBC and TSB have cut rates on their fixed mortgage deals.

It’s a sign that home loan costs may be close to peaking after surging to nearly 7%.

The reductions follow data last week that showed inflation fell further than expected in June, helping to calm financial markets and trim expectations of the number of interest rate rises still required to tame inflation.

Can Howard Davies cling onto the top job on the NatWest board until 2024?

Our financial editor, Nils Pratley, thinks not – even though Davies himself hoped to hang on until July 2024, before the Farage bank row blew up.

Nils writes:

Davies has probably escaped the need for an instant resignation only by virtue of the fact that he was going anyway. Plan A, which pre-dates the Coutts fiasco, was for him to leave by July next year for the conventional reason that his nine-year term will be up at that point. An obvious strategy now would be to accelerate the timetable and get out as soon as is practical.

Since the search for a new chair has already been running for a few weeks, it should not take ages to find a new face, even if the pool of likely volunteers may have shrunk over the past week. One suspects Davies will want to be out in the autumn, or at least to have named his successor by then. And it will be amazing if he’s still there by Christmas. Under a new chair the necessary broader overhaul of the boardroom after the incompetence of the past month can begin.

The row over access to UK bank accounts is creating some unlikely alliances.

Nigel Farage has thrown his backing behind anti-Brexit campaigner Gina Miller, after it emerged this morning that Monzo bank is to close the bank account of Miller’s True and Fair party.

Farage says he stands with Miller, who famously challenged the UK government in 2016 over its authority to trigger the process of leaving the European Union without parliamentary approval.

Miller warned this morning that “we don’t have a functioning democracy” if new political parties cannot access banking services.

More than 1,000 Manchester Stagecoach drivers have voted overwhelmingly for industrial action, the Unite union has announced.

Strike action will take place on 11, 12, 13 and 14 August, and will “severely” affect bus services across the whole of Manchester, Unite says.

The drivers have rejected an offer of 4% from June 2023 with a further 4% cent in December, which Unite points out is below the RPI inflation rate of 10.7% (although it pretty much matches June’s CPI inflation reading of 7.9%).

America is continuing to win its battle against inflationary pressures.

The US PCE price index, which tracks cost changes, rose by 3% in the year to June, data just released shows, down from 3.8% in May.

That matches the official reading for consumer price inflation in June, which dropped to 3% this month too – nearer to the 2% target.

Prices for goods decreased by 0.6% while prices for services increased 4.9%.

Food prices increased 4.6% while energy prices tumbled 18.9% compared to a year earlier.

Core PCE, which excludes food and energy, rose by 4.1% from one year ago. This measure is closely watched by the Federal Reserve.

Newsflash: Dr Ben Bernanke, the former head of America’s central bank, the Federal Reserve, is to lead a review into the Bank of England’s forecasting.

The BoE says the review will aim to “develop and strengthen” the Bank’s support for the Monetary Policy Committee’s approach to forecasting and monetary policy making in times of uncertainty.

This follows criticism that the Bank failed to predict the surge in inflation over the last year or two, meaning it was too slow to tighten monetary policy by raising interest rates.

Bernanke, who ran the Fed from 2006 to 2014 and won the 2022 Nobel prize in economics, says:

“Forecasts are an important tool for central banks to assess the economic outlook.

But it is right to review the design and use of forecasts and their role in policymaking, in light of major economic shocks. So I am delighted to be leading this work for the Bank.”

A month ago, the Bank’s chief economist, Huw Pill, said the Bank’s forecasting models became become “unworkable” in the current crisis, as they failed to fully appreciate the the interaction of high energy prices and a tight jobs market.

In the energy sector, profits at oil giant ExxonMobil have halved, following the drop in crude prices.

America’s biggest oil company has reported a net income of $7.9bn for the second quarter, down from the record $17.9bn profit it posted in Q2 2022.

The number of people across England and Wales registering for “breathing space” from their debts jumped by 26% in the second quarter of this year compared with the same period in 2022, according to the Insolvency Service.

Some 21,232 breathing space registrations were recorded in the second quarter of 2023.

Within the total, 20,919 were standard registrations and 313 were mental health breathing space registrations.

A standard breathing space is available to people with problem debt and gives legal protections from creditor action for up to 60 days.

A mental health crisis breathing space is available to someone who is receiving mental health crisis treatment. It lasts as long as the person’s mental health crisis treatment, plus 30 days.

Here’s our news story about Howard Davies’ plan to remain NatWest chair to provide the bank with stability, and the bank’s hiring of external lawyers to investigate the closure of Nigel Farage’s Coutts accounts.

It explains:

Davies, who was already due to retire from his post in summer 2024, told journalists on Friday morning that the search for his successor would continue in a “completely normal” manner, despite the prime minister failing to publicly back him a day earlier.

“My intention is to continue to lead the board,” Davies said.

“My understanding is that we do have the support of our main shareholder and of the regulators, for us to continue to steer this bank forward,” he said, referring to the government’s 38.5% stake, a hangover from its 2008 state bailout.

More here.

Pharmaceuticals group AstraZeneca has, like NatWest, beaten profit expectations this morning, despite a tailing off in revenues from Covid-19.

AstraZeneca reported a 25% rise in core earnings per share for the second quarter of the year. Revenues rose 4% to $22.3bn, despite a decline of $2.2bn from Covid-19 medicines.

AstraZeneca reported no sales of Vaxzevria, its Covid-19 vaccine, in the second quarter.

Instead, its blockbuster cancer drugs lifted sales, with oncology revenues up 22% thanks to a “strong performance across key medicines and regions”.

AstraZeneca chief executive Pascal Soriot told reporters this morning that the company was “very encouraged” by interim data from the trial of a key lung cancer drug, called datopotamab deruxtecan.

At the start of July, AstraZeneca’s shares fell 8% after the firm said it was too soon to say with statistical significance if patients taking datopotamab deruxtecan would also live longer. Investors were disappointed then that the company did not say the data was “clinically meaningful”.

Today, AstraZeneca’s shares are up 4%.

2023 has been a pretty profitable year for the banks, although there are now signs that the windfall from higher interest rates is fading…