Credit Suisse aided tax evasion, says US Senate committee; Bank of England reports UK banks are ‘resilient’ – as it happened

Time to close up. UK stocks are up 1% on the FTSE 100 while Europe’s main indices have advanced between 1.2% and 1.4% as fears of a global banking crisis ebbed – the third day of gains. Wall Street is also higher, with the Dow Jones gaining more than 200 points.

Eurozone bond yields have stabilised after the turmoil of recent weeks.

Credit Suisse has violated a 2014 plea agreement with the US government and concealed more than $700m from tax authorities – and the Swiss bank continues to help ultra-wealthy Americans dodge taxes, the US Senate Finance Committee has concluded after a two-year investigation.

The news came on the day the Swiss bank UBS announced the surprise return of Sergio Ermotti to oversee the takeover of its rival Credit Suisse, amid global concerns over the stability of the banking industry.

Jeremy Hunt has pledged to find additional money to help fund public sector pay deals after admitting that Britain’s high level of inflation has made it impossible for Whitehall departments to end strikes without Treasury support.

The Bank of England has called for tougher rules governing pension schemes and major lenders outside the banking mainstream as it seeks to restore confidence in the wider financial system.

Mortgage approvals in the UK rose for the first time in six months in February amid signs that the collapse in demand for property seen last autumn might be bottoming out.

Next said it expected to raise prices more slowly in the coming year in a sign of easing inflation, as the clothing and homeware retailer reported record annual profits of £870m.

Our other stories today:

Thank you for reading. We’ll be back tomorrow. Good-bye! – JK

Yields on eurozone government bond yields are stable today after two days of increases. Yields, which move inversely to prices, tumbled earlier this month after Silicon Valley Bank collapsed and UBS was forced to ride to the rescue of troubled Swiss lender Credit Suisse.

This prompted investors to pile into the safety of government bonds, as traders bet that central banks would be unable to raise interest rates much further amid the turmoil.

However, yields picked up again in recent days as investors’ confidence returned and favoured stocks over bonds. Germany’s 10-year bond yield, the benchmark for the eurozone, rose 3 basis points to 2.31%.

Wall Street has opened higher as fears about a global banking crisis faded, and expectations grew among investors that the US Federal Reserve would pause interest rate hikes.

The Dow Jones rose more than 170 points, or 0.5%, to 32,566 at the open. The S&P 500 climbed 28 points, or 0.7%, to just under 4,000 while the Nasdaq gained 140 points, or 1.2%, to 11,855.

Here’s our full story on the surprise return of Sergio Ermotti at the Swiss bank UBS, to oversee the takeover of its rival Credit Suisse, amid global concerns over the stability of the banking industry.

Roman Abramovich secretly funded the takeover of a Dutch top division football club and bankrolled it for years during the period that he also owned Chelsea, leaked documents appear to show.

Two investigations by the Netherlands football association were unable to uncover any financial ties between Abramovich and the club, Vitesse Arnhem, and concluded that the Russian oligarch had no managerial influence on Vitesse. Both Vitesse under its then owners, and Chelsea under Abramovich, repeatedly denied the oligarch was involved in funding the Dutch club.

The financial information has come to light in the Oligarch files, a cache of leaked data originating from the Cyprus-based offshore service provider MeritServus. The documents, reviewed by the Guardian and the Bureau of Investigative Journalism, appear to reveal for the first time at least €117m (£102.8m) in secret funding from Abramovich for the Vitesse takeover, which flowed through a series of entities registered in opaque offshore tax havens.

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Links to Chelsea were suspected at the time of the 2010 takeover, which was led by the Georgian former footballer Merab Jordania. While he described Abramovich as his friend at the inaugural press conference, Jordania denied the oligarch was involved.

And our story on mortgage approvals rising for the first time in six months in February amid signs that the collapse in demand for property seen last autumn might be bottoming out (while mortgage lending fell sharply to a multi-year low).

Figures from the Bank of England showed that home loan approvals rose from 39,647 in January to 43,536 in February – reversing a downward trend in place since August 2022.

Here’s our full story on the Bank of England calling for tougher rules governing pension schemes and major lenders outside the banking mainstream as it seeks to restore confidence in the wider financial system.

British banks remain resilient to further financial shocks, the Bank said but there was greater urgency to make non-bank finance companies that lend trillions of dollars globally more resilient.

In its quarterly report on the health of the UK’s financial system, the central bank’s financial policy committee said pension funds hit by last autumn’s crisis in liability driven investments, when a sharp fall in the value of government bonds triggered a fire sale of assets, would need to increase their reserves to prevent it happening again.

British Gas is to introduce new lower prices for customers reliant on prepayment meters on Saturday – bringing the changes forward from July.

At the moment, prepayment customers pay more for their energy than those on direct debits. British Gas has come under fire for forcibly installing prepayment meters in people’s homes, prompting an investigation by the regulator Ofgem.

Prepayment customers will see prices lowered to match the costs for payments via direct debit.

British Gas has calculated that the annual saving will be £59 a year for the average dual fuel bill.

More than 94,000 prepayment meters were forcibly installed in homes using warrants last year, the government said this week. British Gas, Scottish Power and Ovo Energy accounted for 70% of them.

The UK chancellor, Jeremy Hunt, said the unexpected rise in inflation to 10.4% last month shows there can be no complacency about rising prices. Speaking to MPs on the Treasury committee, he said:

Only a week ago we found that inflation had actually gone up from 10.1% to 10.4% and I think that demonstrates there can be absolutely no room for complacency.

Referring to central banks hiking interest rates, he said:

I don’t believe they are over-reacting. There is still inflationary pressure in the economy. I am very concerned about it and we need to keep our eye on the ball.

Credit Suisse has violated a 2014 plea agreement with the US government and concealed more than $700m from tax authorities – and the Swiss bank continues to help ultra-wealthy Americans dodge taxes, the US Senate Finance Committee has concluded after a two-year investigation.

The committee said it had uncovered “major violations” of the 2014 agreement between the Swiss lender and the US Department of Justice for enabling tax evasion.

These violations include failing to disclose nearly $100m in secret offshore accounts belonging to one family of American taxpayers, which it described as an “ongoing and potentially criminal conspiracy”.

The committee chairman Ron Wyden said:

At the center of this investigation are greedy Swiss bankers and catnapping government regulators, and the result appears to be a massive, ongoing conspiracy to help ultra-wealthy US citizens to evade taxes and rip off their fellow Americans.

Credit Suisse said it did not tolerate tax evasion and had been cooperating with US authorities. The bank said:

Credit Suisse’s new leadership team has cooperated with the Committee’s inquiry and has supported the work of Senator Wyden, including in respect of suggested policy solutions to help strengthen the financial industry’s ability to detect undisclosed US persons.

More on UBS’s decision to bring back Sergio Ermotti as chief executive, a surprise move.

Ermotti, a former Merrill Lynch equity derivatives trader who led UBS for nine years until 2020 and slashed 10,000 jobs from the bank in 2012, faces the tough task of combining UBS and Credit Suisse, laying off staff, scaling back Credit Suisse’s investment bank and restoring confidence – in particular the wealthy who deposit their cash with UBS.

UBS chairman Colm Kelleher said about the decision to replace Ralph Hamers as CEO:

We felt we had a better horse.

He downplayed the importance of Ermotti’s nationality in getting the job:

This is not a Swiss solution.

Being Swiss helps. But the majority of our business is global.

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Ermotti, 62, will leave the global reinsurance group Swiss RE, where he is chairman, to take the helm at UBS next Wednesday after what he described as a “call of duty”. He made a please for “a little bit of patience” over “a couple of months” to allow the bank to come up with a proper plan. He told a press conference:

We cannot rush into decisions which are regrettable.

UBS shares climbed 2% in early trading, and are now trading 1.6% higher at 18.02 Swiss francs.

Financial Times journalist Sam Gad Jones tweeted from Zurich:

The Bank of England has said that Britain’s banking system is not at risk from the kind of turmoil that has engulfed some regional banks in the US and Switzerland’s second-biggest lender Credit Suisse, which is being taken over by UBS.

However, the central bank’s financial policy committee (FPC) told regulators to move fast to toughen rules for funds used by Britain’s pension industry, which nearly collapsed last year after the former prime minister Liz Truss’s disastrous mini-budget.

But Britain’s broader banking sector is well-capitalised and has large liquid asset buffers, and would be able to continue lending to businesses if interest rates rise further and the economy worsens, the FPC said after its 23 March meeting.

Recent weeks have seen several overseas banks fail or come under severe stress. Banks’ share prices fell across the world and investors became more cautious.

The FPC is monitoring these events and the potential impact on UK banks and financial stability. UK banks are resilient and are strong enough to support households and businesses.

The FPC will continue to monitor developments closely, in particular for the risk that indirect spillovers impact the wider UK financial system.

The FPC told pension regulators to act “as soon as possible” to limit the risks posed by liability-driven investment (LDI) funds.

The central bank was forced to step in with a new round of government bond purchases last autumn after Truss’s package of unfunded tax cuts triggered a surge in gilt yields.

LDI funds should set aside enough liquidity to ensure they can cope with a jump in government bond yields of at least 250 basis points, on top of other protections against wild market swings, the Bank said today.

The sharp decline in UK mortgage lending to just £700m in February suggests house prices have further to fall, said Thomas Pugh, economist at the tax and consulting firm RSM UK.

Admittedly, a small rise in mortgage approvals, the first since August, suggests that demand may have already reached its nadir. But higher interest rates and falling real incomes will limit buyers’ ability to meet high prices. We expect a peak to trough fall in house prices of between 5% and 10%.

Meanwhile, the sharp drop in lending to the private sector suggests that banks were already curtailing lending, even before the latest issues in the financial sector. We estimate that the tightening in financial conditions around the recent turmoil is equivalent to a 25bps increase in interest rates.

There was also little sign that the recent upticks in consumer confidence have led to households borrowing more or saving less. Indeed, consumer credit growth was slightly lower in February than in January. What’s more, consumer savings rose from £3.3bn in January to £3.6bn in February. And it seems that those households with savings are moving them to longer term accounts that pay more interest, rather than spending them. Net flows into time deposits remained strong at £6.8 billion in February, but this was largely offset by net flows of interest-bearing sight deposits at -£6.1 billion in February.

We are yet to see most of the impact of the huge rise in interest rates over the last year and real incomes are likely to drop further in the first half of 2023. Even if the UK does avoid a technical recession of two consecutive quarters of negative GDP growth, we will still enter a ‘slowcession’, where growth essentially flatlines. It will probably be the end of 2024 before the UK economy is back to its pre-pandemic size, representing four years of stagnation.

Jeremy Hunt is being quizzed by MPs on the Commons Treasury committee about the spring budget.

He said the Treasury has not yet decided how much funding the Department of Health and Social Care will get to fund a pay deal for NHS workers.

He explained that government departments normally fund pay settlements from the money they get in the spending review. But in exceptional circumstances they can speak to the Treasury about extra help.

He said this is a special situation because of high inflation. There will be a discussion about how much help health will get, but this hasn’t happened yet.

You can read more on our politics live blog with Andy Sparrow:

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has also looked at the data.

The continued weakness of house purchase mortgage approvals in February confirms that buyers are waiting for affordability to improve, either via a large correction in house prices or a larger fall in mortgage rates than seen to date, before re-entering the market.

Households showed further signs in February of drawing on the savings they accumulated during the pandemic to sustain their consumption.

Ashley Webb, UK economist at Capital Economics, said:

February’s money and credit data release suggests that higher interest rates were a further drag on lending in February, particularly in the housing market. That’s before the recent concerns over the health of global banks, which may prompt UK banks to tighten credit conditions further. Our hunch is that the economy will still enter a recession later this year.

Mortgage approvals rose for the first time in six months from 39,600 in January to 43,500 in February. But that still leaves them languishing around 35% below pre-pandemic levels. And the monthly increase in net mortgage lending eased from £2bn to £700m… And with interest rates likely to stay high for all this year, housing market activity will likely remain weak for some time yet.

But higher interest rates still appear to be less effective elsewhere in the economy so far. The 1.2% month-on-month surge in retail sales volumes in February suggests households continued to spend in February. And today’s data release suggests households partly financed that spending by increasing borrowing.

Overall, it’s clear that higher interest rates are weighing on the housing market. But they appear to be having less of a drag in other areas of the economy as households continue to borrow to support spending. However, the recent tightening in financial conditions might cause banks to restrict their credit supply, which would amplify the drag on real activity, or at least bring it forward.

Mortgage lending in the UK fell sharply last month to the lowest level since the summer of 2021 – and was the lowest since 2016 if the Covid period is excluded – while mortgage approvals rose for the first time since August.

The latest Bank of England figures out this morning show that net mortgage lending to individuals fell from £2bn in January to £700m in February, the lowest since July 2021. Excluding the Covid pandemic, this is the lowest level of net borrowing since April 2016 when it was also £700m.

Mortgage approvals for house purchases increased to 43,500 in February, from 39,600 in January. This marked the first monthly increase since August 2022.

The ‘effective,’ or actual interest rate paid on newly drawn mortgages increased by 36 basis points, to 4.24% in February.

The data also showed consumers borrowed an additional £1.4bn in consumer credit in February, on a net basis, compared with £1.7bn borrowed during January. This was split between £600m of borrowing on credit cards and £800m of borrowing through other forms of consumer credit such as personal loans.