RBS Faces Large Call For SME Lending Reform

By Mark Kleinman, City Editor

The taxpayer-backed Royal Bank of Scotland (RBS) will face demands to overhaul its small business lending practices later this week following a four-month review led by a former deputy governor of the Bank of England.

Sky News has learnt that Sir Andrew Large, who was appointed to lead the review in July, will criticise many of the processes and quality of decision-making surrounding RBS's lending to smaller companies in recent years.

RBS, which is 82%-owned by the taxpayer, is the largest UK lender to small and medium-sized businesses (SMEs) but has faced relentless attacks since its £45.5bn rescue in 2008 for its perceived failure to do more to coax the economy into a faster recovery.

"There will be a focus on the skills of those who are responsible for SME lending decisions," said a person familiar with Sir Andrew's review.

"It is a highly critical report," said another.

The paper is to be published on Friday and will be timed to coincide with the announcement of a wider restructuring of RBS's business that was commissioned by George Osborne, the Chancellor, earlier this year.

Sky News understands that Sir Andrew's review will extend beyond RBS to call for an overhaul of many of the entire banking industry's practices in areas such as data-gathering, in an attempt to improve the targeting of SME lending activity across the UK.

Among dozens of recommendations, Sir Andrew is also expected to call for executive remuneration to be tied more closely to the success of RBS's SME lending activities, and will urge much faster decisions to be given to small business-owners about loan applications.

Successive initiatives launched by the Coalition since the 2010 general election, including formal lending targets for RBS and the Project Merlin manifesto in 2011, have failed to stimulate a significant upturn in SME lending.

The continued political debate about RBS's SME lending prompted Stephen Hester, RBS's former chief executive, to declare the availability of £20bn of balance sheet capacity for small companies to utilise. Much of this money has not been accessed by SMEs, according to an RBS insider.

Data published on Tuesday showed that SME lending across the industry accelerated during the three months to the end of September.

"This is a strong increase in the amount of new lending to small businesses - they borrowed more than £10 billion from banks in the last quarter - that's 11% higher than the same quarter last year," said Richard Woolhouse, chief economist at the British Bankers' Association.

"Banks are in the business of lending and these figures show that many firms are realising that there has seldom been a cheaper time to apply for credit."

The broader review of RBS's business will fall short of a full break-up of the bank.

Sky News revealed at the weekend that tens of billions of pounds of loans will be placed in a rebranded internal bad bank, with a series of asset sales accelerated by Ross McEwan, its new chief executive.

RBS and a spokesman for Sir Andrew declined to comment.

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Japan Watchdog To Probe Mob Bank Loan Scandal

Japan's top three banks are to be investigated in the wake of a loans-to-mobsters scandal, the country's financial watchdog has revealed.

The Financial Services Agency (FSA) will look at the business dealings of scandal-hit major lender Mizuho, as well as rivals Mitsubishi UFJ and Sumitomo Mitsui Banking Corp, an agency spokesman said, without disclosing further details.

The widening investigation would probe a range of issues including the banks' risk management systems, Jiji Press news agency said.

The scandal has made headlines for weeks in Japanese media, and reportedly sparked a police investigation into corporate ties with organised crime.

Finance minister Taro Aso says the transactions are a "huge problem"

The widening regulatory probe comes a day after a panel of lawyers hired by Mizuho to look into its links with organised crime said bank executives knew it was doing business with gangsters but failed to stop the practice.

"Many officials and board members were aware of, or were in a position to be aware of, the issue," said the panel's 100-page report.

"However they failed to recognise it as a problem, believing that the compliance division ... was taking care of it."

A former yakuza member, showing his missing little finger

Mizuho has been under fire since it emerged last month that it processed hundreds of loans worth about $2m (£1.2m) for the country's notorious yakuza crime syndicates, which are involved in activities ranging from prostitution and drugs to extortion and corporate crime.

Finance minister Taro Aso called the Mizuho transactions a "huge problem", and said the bank's initial - and incorrect - claims to regulators that executives knew nothing about the loans was "the worst thing a bank can do".

Mr Aso also appeared to take aim at the FSA, saying that "we have to improve what we are supposed to be doing", following questions about the watchdog's handling of the high-profile case.

Mizuho has submitted its own report to regulators and said that 54 former and current executives will be punished, including chairman Takashi Tsukamoto who is to step down from his post but stay on as head of the parent company.

The yakuza gangs, which themselves are not illegal, have historically been tolerated by the authorities, although there are periodic clampdowns on some of their less savoury activities.

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Economic Benefit Of HS2 Not As High As Claimed

The economic benefit to the country of HS2 high-speed rail will not be as great as first predicted, according to a report by the scheme's promoters.

It had been estimated that for every £1 spent on the £50bn project the wider economic benefit would be £2.50.

However, this has been revised and a report published today revealed that for every £1 spent the wider economic benefit would be just £2.30.

The drop will be seized upon by critics of the project, who question whether the benefits of high-speed rail will outweigh both the financial and environmental costs.

Labour is questioning the cost of the project and shadow chancellor Ed Balls has indicated that the party may withdraw its support, which the Prime Minister has in turn suggested would mean the project might not go ahead.

Tory heartlands: the Chilterns where a viaduct will be built for HS2

However, Transport Secretary Patrick McLoughlin, today accuses Labour of "playing politics" with the scheme.

In a speech at a rail conference on Tuesday Mr McLoughlin was expected to say: "Let me say something very direct to those in the opposition who have learnt nothing from the past.

"You can't say one day you back better infrastructure only the next threaten to stop it being built.

"You can't go on claiming to want one nation if you won't back the things that will bring it together. You can't play politics with our prosperity. The new north-south line is a multibillion, multi-year investment in the future of Britain.

Opponents question whether benefits will outweigh the costs

"And to those who say there's no blank cheque, I just say: that's obvious. Did anyone ever claim there was? Britain has shown it can build great infrastructure like HS1 or the Olympics on time and on budget."

Following the publication of today's HS2 report, Stop HS2 campaign manager Joe Rukin said: "As we expected, the Government have pulled some random figures out of the air in a desperate attempt to con the public.

"As if by magic, they expect us to believe that, after three years, the economic case for HS2 has risen like a phoenix from the flames. They surely must realise that everyone is going to see through this cynical attempt at spin.

"Every case they have put up for HS2 so far has been torn apart, and this one will be no different."

Presenting the report, The Strategic Case for HS2, the HS2 Ltd said the revisions on economic benefit were based on a recalculation of the number of business travellers using the 225mph trains and the amount of work they do on trains.

The London to Birmingham phase will be completed by 2026

However, it added that the economic benefit would increase to £4.50 for every £1 spend on the project if rail demand continued to rise until 2049.

The first phase of the project will link London to Birmingham by 2026, the second phase will provide a y-shaped extension to both Leeds and Manchester by 2033.

The report also drew on one published by Network Rail and engineering company Atkins, which said there would be 14 years of weekend engineering work on the railways if HS2 did not go ahead.

Mr McLoughlin told Sky News that the high-speed rail line, which goes through Tory heartlands, must go ahead to serve the "great cities of this country outside of London" and to generate investment there.

Trains will run at 225mph and carry 1,100 passengers

He said that in the last 20 years the number of rail passengers had doubled from 750m to 1.5bn and that the railways needed greater capacity.

Shadow transport secretary Mary Creagh said: "Labour has always supported HS2 because we must address the capacity problems that mean thousands of commuters face cramped, miserable journeys into cities like Birmingham, Manchester, Leeds and London.

"However, we cannot give a Government that is mismanaging this, or any project, a blank cheque. Our message to David Cameron is clear. Get a grip on this project, get control of the budget and get it back on track."

The 400m long trains, carrying 1,100 passengers, would run at the rate of 14 an hour for the first phase of the project and this would increase to 18 when the full line is completed.

Journey times from London to Birmingham would be just 49 minutes, while trips to Manchester from London would be just one hour eight minutes and to Leeds, one hour 22 minutes.

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Lloyds Profits Hit As PPI Bill Tops £8bn

Lloyds Banking Group has set aside another £750m to cover the costs of the payment protection insurance (PPI) scandal, taking its total provision past £8bn.

The part-nationalised lender confirmed the news - broken by Sky's City Editor Mark Kleinman on Monday night - when it announced its third quarter results. 

Its statutory profit before tax of £1.694bn for the nine months to September 30 reflected the additional PPI writedown and compared to a loss of £607m for the same period last year.

But the group, which is 33% owned by the taxpayer, recorded pre-tax losses of £440m in the quarter compared with a £151m loss in the same period last year - a result of PPI claims remaining higher than expected.

The total PPI provision of £8.02bn includes £1.7bn for administration costs alone.

PPI compensation is said to have helped boost consumer spending

Lloyds said it received an average 11,000 complaints a week over the three month period though monthly complaint volumes were starting to fall.

The results were the first since the Treasury began the process of returning its stake in Lloyds to the private sector, selling a 6% chunk for £3.2bn to institutional investors last month.

Antonio Horta-Osorio, the bank's chief executive, said of the performance: "The third quarter was a significant one for the group.

"We returned the TSB brand to the high street, launched a revitalised Lloyds Bank, and I am pleased that the progress we have made enabled the UK government to begin the process of returning the Group to full private ownership and getting taxpayer's money back at a profit.

"These are key milestones for Lloyds Banking Group and UK banking," he said.

The continuing nature of the PPI scandal underlines how one of the banking sector's most profitable products in the years after 2000 has become a giant millstone around its neck.

The British Bankers' Association has been holding talks with the Financial Conduct Authority about the imposition of a time limit on PPI claims, although these discussions have so far been fruitless.

The rest of the major high street banks are likely to have to increase their own PPI provisions, with Barclays and Royal Bank of Scotland also reporting third-quarter results later this week.

In February, the Financial Times quoted one unnamed Lloyds shareholder as saying that it would review its investment in the bank if PPI costs continued to rise.

"If PPI costs rise further, then that could tip the balance in our decision on whether to hold or sell our shares in the company," they are reported to have said.

That sentiment has not held back the Lloyds share price despite the fact that its PPI bill has escalated further.

On Monday, the owner of Halifax saw its share price close at 79.62p, a near-doubling during the last 12 months.

As Sky News revealed at the weekend, Mr Horta-Osorio has a vested interest in seeing the shares remain above 73.6p until the second half of November. If they do, the performance over 30 consecutive trading days would crystallise a bonus that on paper is currently worth just under £2.5m.

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Fox's Eyes Joint Bid For Rival Biscuit-Maker

By Mark Kleinman, City Editor

Fox's, one of the UK's biggest biscuits brands, is in talks with private equity funds about a joint bid for rival Burton's Foods, the maker of Jammie Dodgers and Wagon Wheels.

Sky News understands that Clayton Dubilier & Rice (CD&R), the US buyout firm, has opened discussions with 2Sisters, the food producer, about a carve-up of Burton's, which has been put up for sale for about £350m.

The two parties have not yet reached a definitive agreement about a joint bid but insiders believe that such an outcome is likely if CD&R emerges as the winning bidder for Burton's.

The potential alliance is being driven by Vindi Banga, a former Unilever executive who is now a senior executive at CD&R, although it is unclear which assets are coveted by Fox's.

Competing bidders in the auction include the private equity arm of the Ontario Teachers' Pension Plan, one of the world's largest pension funds.

A sale of Burton's will entail a change of ownership for another portfolio of prominent UK food brands following the sale several months ago of the snacks division of United Biscuits (UB), which included Hula Hoops and KP Skips among its products.

Burton's is Britain's second-largest biscuits manufacturer by sales, behind UB, which is also owned by two private equity groups, Blackstone and PAI Partners.

As well as Wagon Wheels, Burton's produces Cadbury Biscuits, Lyon's and Maryland cookies.

Based in St Albans, Hertfordshire, Burton's traces its roots back to the mid-1800s when it was founded by George Burton.

It employs more than 2,200 people around the UK in three manufacturing facilities in Llantarnam, Edinburgh and Blackpool, a chocolate refinery in Moreton and a central distribution hub in Liverpool.

Burton's is one of a sizeable number of mid-sized British companies which has been through several phases of private equity ownership.

In 2009, Apollo and CIBC, the Canadian bank, seized control of the company after Duke Street Capital, its previous owner, was forced to surrender control to the biscuit-maker's lenders.

Another private equity group, HM Capital, had bought the company in 2000 from Associated British Foods, owner of the Primark retail chain.

The auction of Burton's will pre-empt that of UB, which is expected to be put up for sale in the next couple of years.

UB, which now consists solely of a biscuits business, owns the McVitie's brand, which includes products such as Jaffa Cakes and Penguin.

CD&R declined to comment.

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BP Shares Soar Despite Q3 Profits Fall

BP shares have soared more than 5% after the company confirmed a shareholder windfall despite a 36% fall in quarterly profits.

The oil firm's underlying replacement cost net profit for the third quarter was $3.692bn (£2.3bn).

While down on the same period in 2012 it represented an improvement on the company's own forecast.

BP blamed weaker refining margins, divestment of refineries and reduced income from its Russian business but raised its quarterly dividend by 5.6% - boosting pension funds and other investors who lost value in their holdings in the wake of the costly Gulf of Mexico disaster in 2010.

The move will earn them 9.5 cents per share just before Christmas on December 20 while BP added to the market cheer by saying it would sell $10bn of assets over the next two years, returning most of the proceeds to shareholders.

BP's share price remains significantly below its pre-disaster level

That was a higher rate of disposal than previously promised and was also a factor in adding value to BP's London-traded shares on the FTSE 100 share index.

BP has already sold $38bn of assets to pay for the Gulf oil spill amid a wealth of continuing legal battles.

The company recently won a victory in its efforts to throw out what it described as false compensation claims against it from businesses, arising from what BP argued was a misinterpretation of its agreement.

While BP agreed to pay genuine claims relating to the severe damage to fishing and tourism businesses along the coast, BP successfully argued many claimants suffered no direct losses.  

As a result, BP today confirmed it had "derecognised" about $400m of provisions within the $20bn fund it has set aside for certain types of compensation.

However, it raised slightly its overall cumulative charge for the spill to $42.5bn (£26.4bn) from $42.4bn as costs continued to swing amid the continuing legal proceedings.

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Blockbuster To Enter Administration Again

The DVD and computer games rental chain Blockbuster is poised to enter administration for the second time this year, placing 2,000 jobs at risk.

It was snapped up in March by private equity group Gordon Brothers Europe after its initial collapse in January but the new owners said it had continued to suffer from poor trading.

Gordon Brothers planned to cut 32 jobs at the chain's Uxbridge headquarters in London while its 264 stores were at risk, the company said, unless a buyer could be found.

It cut Blockbuster's store portfolio and staff numbers in half to prioritise prime locations and new releases but said its turnaround attempts for the historically loss-making company coincided with low demand across rental and retail sales.

It said stores would remain open for now but some may need to close if a buyer cannot be found.

Blockbuster has been hit hard by intense competition from supermarkets, as well as the shift from physical rental and sales to online games, music and films.

The devastating impact of web-based sales on Britain's high streets was already laid bare by the demise of camera chain Jessops and electricals group Comet, which also cited competition from online players as a major reason for their declines.

Jessops was later reborn under the control of entrepreneur Peter Jones of TV Dragons Den fame.

Gordon Brothers said today it had tried to turn around the chain by restructuring, investing in marketing and negotiating new deals with landlords to bring down rent costs.

But it failed to broker a licensing deal with US company Blockbuster LCC, which owns the brand, for a new digital platform.

It said efforts will now focus on "giving the company a chance of future survival through a reduced and different business model in the hope that a buyer will be found."

Frank Morton, chief executive of Gordon Brothers Europe, said: "Since the acquisition, we have worked extremely hard to reignite the Blockbuster brand, make our investment work and put the business on a viable footing.

"Despite our best efforts, we regret that we are now forced to make some redundancies and would like to thank any affected employees for their support during the last six months."

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Libor Scandal: Rabobank To Pay £663m Fine

US and European regulators, including the UK's Financial Conduct Authority (FCA), have fined Dutch lender Rabobank a total of £663m over the Libor interest rate scandal.

As news of the settlement was announced, the bank's chief executive Piet Moerland confirmed he would resign with immediate effect - effectively carrying the can for Rabobank's actions despite the company insisting that no members of its top management were aware of wrongdoing.

Mr Moerland said he had been shocked by the evidence of manipulation, which included email trails.

One Libor submitter responded to one trader "Don't worry mate - there's bigger crooks in the market than us guys!" in one request for a high rate while an employee on the bank's money market desk in London told one dollar derivatives trader: "I am fast turning into your Libor *****!!!!."

Rabobank admitted at least 30 employees were involved in inappropriate conduct and it had taken "extensive steps" to strengthen controls relating to its benchmark submission processes - measures the FCA said were late to be implemented.

Libor, which stands for London Inter-Bank Offered Rate, is based on daily estimates of the rates at which a panel of banks borrow funds from one another.

The rate affects the value of financial products across the world including mortgages and  Rabobank is the fifth financial institution to have settled with regulators over the scandal to date.

The FCA said Rabobank's misconduct was among the most serious on Libor

Barclays paid just over £290m, Royal Bank of Scotland just over £390m and UBS 940m while London-based brokerage ICAP was fined £55m.

The FCA imposed £105m of the total fine against Rabobank, saying it had identified more than 500 instances of attempted Libor manipulation.

The FCA said it discovered "serious, prolonged and widespread misconduct" with poor internal controls encouraging collusion between traders and Libor submitters.

It claimed Rabobank did not fully address its failings until August 2012, despite assuring the FCA in March 2011 that suitable arrangements were in place.

Tracey McDermott, the FCA's director of enforcement and financial crime said: "Rabobank's misconduct is among the most serious we have identified on Libor.

"Traders and submitters treated Libor submissions as a potential way to make money, with no regard for the integrity of the market. This is unacceptable."

The FCA found evidence of manipulation and collusion involving at least nine manager and 19 other individuals worldwide between May 2005 and January  2011.

The watchdog said Rabobank allowed derivatives and money market traders to make, or influence others at the bank to make submissions that benefited trading positions linked to the pound, dollar and yen.

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Live: MPs Question Big Six Energy Firms

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3:09pm UK, Tuesday 29 October 2013

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Energy Crisis: MPs Turn Spotlight On Big Six

Energy: Who Are The Big Six?

Updated: 10:56am UK, Tuesday 29 October 2013

By Anushka Asthana, Political Correspondent

As energy bills continue to dominate in Westminster, MPs will today hear from the "Big Six" companies – who together supply over 99% of British homes. So who are they?

:: British Gas

Much to the annoyance of MPs and the public, five out of six of the companies have failed to put up their chief executives. British Gas will instead put up Ian Peters, managing director of energy.

He will be seen as a key witness because British Gas (which also operates as Scottish Gas) is the UK's largest supplier of energy to households with almost 10 million residential customers.

British Gas has announced that the bills for dual-fuel customers will rise by 9.2% from 23 November. That is an 8.4% increase in gas prices and 10.4% in electricity.

The average annual bill will go up by £123 to £1,444. That is despite an overall profit in 2012 of over £600m.

:: E.ON

Tony Cocker is the only chief executive agreeing to stand in the spotlight today. His company, E.ON, has yet to announce price rises although it is expected to do so soon.

E.ON – which used to be called Powergen – operates in over 30 countries, serving 26 million customers.

Its price increases last year brought the average bill to £1,370. Its sales revenues in 2012 rose by 5% to £132.1bn with profits in excess of £800m

But the previous chief executive said the results were down to one-off effects and warned that parts of the business remained barely profitable.

:: EDF

Martin Lawrence, the managing director of energy sourcing and customer supply, will represent EDF today.

The company – which supplies around 3.7 million households in Britain - has also not announced a price increase as yet although it was one of the later ones to do so last year as well.

In 2012 it put up the average dual-fuel bill by 10.8%

The company's UK retail arm made a loss of £92m in 2012. But the success of its power generation arm – with nuclear power stations, coal plants and a gas power station – meant it was able to announce profits above £900m in the summer.

:: SSE

This latest storm of controversy around energy bills began with an announcement by SSE of an 8.2% increase in dual-fuel prices. This pushed up the average to £1,380

That is despite profits of over £400m in 2012. The company blamed wholesale prices but also green levies attached to bills through Government policy. The row led David Cameron to pledge to roll back the levies.

The company is putting forward Will Morris, managing director of retail.

:: npower

With 3.5 million UK customers npower is a huge player in the UK and one of the largest gas and electricity companies across Europe.

The company has announced its price rises to come in at the start of December. The electricity price will increase by 9.3% with gas going up by 11.1% – making the average bill 10.4% higher – up to £1,459.

In March the company faced controversy when it announced a 34% increase in profits to £413m – although the figure relating to domestic supply is lower.

The company is putting up Guy Johnson, its external affairs director.

:: Scottish Power

Neil Clitheroe, CEO retail and generation, will appear in front of MPs. The company is the most recent to announce price rises this winter of 8.6% - an 8.5% rise in in gas and 9% in electricity.

That means the average household bill will go up by £113 to £1,424.

It revealed that it had more than doubled pre-tax profits to £712m in July – and an £890m divided to its Spanish parent, Iberdrola, also caused anger.

:: Watch MPs question representatives from the Big Six on Sky News from 2.30pm.

:: Watch a live debate on energy between shadow energy minister Caroline Flint and energy minister Michael Fallon at 5.30pm on Sky News.

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