Bank Regulators Kick Off Formal Co-Op Probes

By Mark Kleinman, City Editor

Banking watchdogs are poised to kick off formal probes into last year's crisis at the Co-operative Bank in a move which could lead to significant fines or bans for former directors of the lender.

Sky News understands that the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are likely to confirm this week that they are commencing enforcement investigations into the circumstances which led to the Co-op Bank requiring a £1.5bn rescue package.

An insider said that statements confirming the widely-expected decisions by the two regulators could come as soon as Monday, although they could yet be delayed.

The move to begin formal enforcement investigations could result in substantial financial penalties being imposed on the Co-op Bank as well as former directors if they are deemed to have been reckless in their stewardship of the lender.

The recapitalisation of the bank, which was approved by bondholders last month, saw hedge funds take majority ownership and the Co-op Group left with a 30% stake.

The FCA and PRA inquiries are among a host of investigations launched into the crisis at the previously mutually owned bank, which was left saddled by hundreds of millions of pounds of toxic assets, partly as a result of its merger with the Britannia Building Society in 2009.

The Treasury Select Committee will continue to take evidence on Tuesday about the ill-fated effort by the Co-op to acquire 630 Lloyds Banking Group branches.

A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.

In a statement in November, the Treasury said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".

That investigation will not, however, begin until after any PRA and FCA enforcement action has been concluded. A shortlist of candidates to oversee the probe has been drawn up with an announcement about the chosen individual expected in the coming weeks.

The FCA said in November that it "fully agrees that the investigation should be led by an independent person, and looks forward to supporting them in their work. The FCA will make its full resources available to support the investigation".

It said: "The timing of the investigation must not prejudice any other criminal or regulatory proceedings. The FCA is already undertaking work to establish whether it should commence a formal enforcement investigation and expects to reach a conclusion shortly."

The PRA, the arm of the Bank of England which is responsible for maintaining financial stability, issued an identical statement.

Euan Sutherland, the Co-op Group chief executive, has also paved the way for two further reviews.

One, led by Sir Christopher Kelly, will examine historical events at the mutual, while Lord Myners, the former City minister who recently joined the group's board, will assess the need for future corporate governance reforms.

Neither the FCA nor PRA would comment on Monday.

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Scottish Power To Cut Dual-Fuel Energy Prices

Energy firm Scottish Power is to reduce dual-fuel prices by 3.3% from January 31, as it passes on savings from the Government's green levy shake-up.

The change will benefit 2.2 million households and reduce typical bills by around £42 to £1,199 a year for those paying by direct debit.

There will also be a £12 rebate to all customers for the Warm Home Discount, which the Government has said will be funded through general taxation instead of through levies on energy bills.

The tariff cut will only partly reverse increases of 8.5% and 9% for gas and electricity respectively that Scottish Power hit customers with a month ago.

And 97% of customers on fixed-price products will not see their bills fall as the company said they were already protected from the rising cost of green levies.

The cut comes a week after Labour called on Scottish Power and rivals npower and SSE to immediately reduce prices for households after the Government cut the cost of the Energy Company Obligation.

It also asked electricity distribution companies to take action to reduce network costs.

British Gas has already reduced prices in response, announcing in early December that it would cut bills by 3.2% on New Year's Day.

British Gas scaled back hikes that saw prices go up by 10.4% for electricity and 8.4% for gas in November.

EDF and E.ON took the levy changes into account in the recent round of price rises, increasing tariffs on average by 3.9% and 3.7% respectively - far less than the increases announced by rivals.

SSE and npower are expected to follow Scottish Power by passing on levy savings.

They have already committed to cutting bills, but have yet to confirm how much or when the changes would take effect.

Scottish Power said it would try to avoid any further price rises in 2014, but said this will depend on whether there are increases in wholesale energy prices or other costs outside of its control.

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PMI Service Sector Growth Slows Unexpectedly

Growth in Britain's services sector slowed unexpectedly in December, according to a new survey.

The monthly services purchasing managers' index (PMI), compiled by data company Markit, fell to a six-month low of 58.8 in December.

It was a drop from November's level of 60.0, and varied from a poll of economists ahead of the survey release.

Despite the dip sector confidence rose and the economy still looks likely to have recorded its strongest expansion since 2007.

Nonetheless, the figure remains well above the 50 mark that separates growth from contraction.

And businesses' confidence about the future rose to the highest level since March 2010 at 73.5, helped by expanding order books.

"More strong growth looks likely as we move into 2014," Markit chief economist Chris Williamson said.

"It is perhaps inevitable, however, that we may see the rate of growth slow compared with the unusually strong pace seen in recent months."

Both the manufacturing and construction PMIs fell last week.

Markit said a composite index of the three PMIs dropped to 59.5 in December from 60.4 - its lowest level since July.

Britain's economy grew at an annualised rate - a measure calculated across a full 12 months - of more than 3% in the second and third quarters of 2013.

That is well above the long-term average of just over 2%.

Mr Williamson said the PMIs pointed to an even faster rate of growth in the final three months of 2013.

When fourth-quarter GDP data is published by the Office of National Statistics on January 28, Markit said it could well show that output for 2013 as a whole grew by 1.9%.

If so, it would be the fastest growth since the start of the financial crisis in 2007.

That is more than forecast by the Bank of England, the International Monetary Fund or the Government's budget watchdog, and marks a sharp turnaround from the start of last year, when Britain seemed at risk of slipping back into recession.

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Asian Markets Rattled Over Ongoing US Fears

Asia's markets fell on Monday in the year's first full day of trade, with Tokyo tumbling as the dollar and euro retreated from five-year highs against the yen.

The reaction comes after investors were given a mixed lead from Wall Street after Federal Reserve chief Ben Bernanke called for continued efforts to reinforce the recovery in the US economy.

Tokyo fell 2.35%, Sydney lost 0.47%, Shanghai dropped 1.80%, while Hong Kong lost 0.58%.

The only Asian bright spot was in Seoul, where the market rose 0.37%.

Japan's Nikkei started the year with heavy losses after surging 57% in 2013, with profit-taking adding to downward pressure, while the yen rebounded from recent lows.

The dollar and euro early last week hit highs against the yen not seen since October 2008, but they fell back on Friday in thin trade as many dealers stayed away after the holiday season.

"Tokyo stocks are overbought, and a break in the yen's fall, plus weaker futures are sure to result in some long-needed profit-taking after the December run-up," SMBC Nikko Securities general manager of equities Hiroichi Nishi said.

"Hopes for a continued US economic recovery and longer-term dollar appreciation should keep sharp sell-offs well contained, however."

The US currency stood at 104.43 yen on Monday in Tokyo against 104.85 yen in New York on Friday, and well off the mid-105 yen mark seen at the start of last week.

In the US, Mr Bernanke's speech on Friday to economists - as he prepares to leave office - called for continued efforts to make sure the world's number one economy keeps growing and unemployment carries on falling.

Highlighting that the US jobless rate fell from 10% in 2009 to 7.0% recently, Mr Bernanke nevertheless insisted: "Much progress has been made, but more remains to be done."

He added that the Fed's decision last month to cut its monthly bond-buying by $10bn (£6.1bn) to $75bn (£45bn) did not indicate any lesser commitment to maintain an easy-money policy "for as long as needed".

The Dow Jones index last Friday added 0.17%, the S&P 500 dipped 0.03% and the Nasdaq fell 0.27%.

Chinese shares extended their losses from last week on fears that the restart of initial public offerings after a year-long hiatus will cause a glut at a time with there is already concern about liquidity.

The 10-year bond yield for China has also risen above 4.7%. The Financial Times said the country's five-year yields are now at a 16-year high.

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December Online Sales Boom As Stores Struggle

Online stores saw a boom in December sales while high street retailers with low web presence struggled for customers, a new report suggests.

Figures from accountancy firm BDO showed December non-store sales leaping 31.1%, rising to growth of 55.7% in the week before Christmas.

However traditional high street sales dropped by 2.2% last month in an "underwhelming" Christmas for many retailers.

The online boom has been supported by research by independent retail consultant Richard Hyman.

He told the Financial Times that online purchases accounted for almost 20% of total retail sales - up 5% on 2012 - with non-food online sales accounting for around a third of all Christmas sales.

The figures showed the sales surge hoped for by many shops failed to materialise in the crucial trading period.

Like-for-like sales - excluding online trade - dropped by as much as 6.7% in the week to December 22.

BDO said even a 3.5% surge in the week to December 29 failed to boost the overall performance for the month which was down 2.2% on December 2012.

December 2012 had seen a 1.9% rise compared with the same month in 2011.

In a statement the accountancy firm said: "Following on from what was a solid month of trading in November, many retailers will have been left disappointed by a month of lacklustre consumer demand in the crucial Christmas trading period."

"Pent-up demand was expected to play a larger role as we moved closer to Christmas day but in reality it never fully took hold."

Bad weather amid the pre-Christmas storms hit trading for many, with fashion sales in particular suffering, down 4.6% last month.

Figures so far from major retailers have confirmed it was a mixed Christmas.

Debenhams issued a shock profit warning last week after suffering dismal trading and resorting to aggressive discounting.

But figures showed robust performances from fashion chain Next and department store rivals John Lewis and House of Fraser.

Marks & Spencer, which also slashed prices in the run up to Christmas, is expected to reveal the results of a tough season for the group when it reports on Thursday.

Data from Barclaycard highlighted a marked trend for shoppers to target discount days for the best deals, with the value of transactions falling by 3.5% last month as shops cut prices to lure in consumers.

BDO track sales across 85 mid-tier retailers with around 10,000 stores, showed while it was an "underwhelming Christmas for most", there were robust performances for some.

Closely watched sales figures from the British Retail Consortium are due on Friday, which will also shed further light on how the sector performed over Christmas.

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London Voted World's Best For Foreign Buyers

Property prices in Britain's capital may come under renewed upward price pressure, after London was voted the world's top city for foreign property investment opportunities.

A flood of inward investment for prime real estate in London has previously been cited as causing a 'house price bubble' in the South East.

London beat last year's winner, New York, in the annual study.

The survey was released on Monday by the Association of Foreign Investors in Real Estate (Afire).

It found that San Francisco was the third-favourite city for foreign investors, with Houston and Los Angeles positioned at fourth and fifth, respectively.

London's top position carries potential problems for Britain's homeowners.

Critics said a squeeze in central London had pushed asking prices upward at an unsustainable rate.

Amid concern of a property bubble, the Chancellor announced plans in December's Autumn Statement for a capital gains tax (CGT) on foreign investors as part of an effort to prevent prices soaring beyond control.

The UK's comparatively generous CGT regime was thought to be one of the factors behind the sharp increase in foreign ownership of properties in London in recent years.

While those living in Britain paid CGT of between 18% to 28% if they made a profit when reselling all but their main home, non-resident property owners were exempt for all their properties.

House prices in London rose by nearly 9% in August alone, compared with around 2% elsewhere in the UK, according to the Office for National Statistics.

Meanwhile, Afire said the US remains the most "stable and secure" country for investment by a wide margin of more than 50 percentage points, over second-place country Germany.

This is the widest margin since 2006 and it said the US remains the country providing the best opportunity for capital appreciation.

It also leads the ranking for planned property acquisitions in 2014, with nearly 50% of respondents projecting a modest increase in their US portfolio size and 20% projecting a "major" increase.

"Foreign investors' continued and growing interest in the US real estate markets reflects fully functioning capital markets for both debt and equity that provide access to a broad range of investment opportunities," Afire chairman Steven Hason said.

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New London Black Cab: Nissan Ditches Diesel

Diesel engines are to be ditched in a new version of the London black cab, which has been launched by Japanese carmaker Nissan.

The company promised that its new 1.6 litre petrol-engine taxi will be cleaner than the current diesel cabs used in the capital and regional areas.

The new taxi comes with round headlamps, a re-modelled grille and new front-bumper panels.

It is a remodelled version of the vehicle first unveiled in August 2012, with modifications made following feedback from the office of London Mayor Boris Johnson.

The new taxi has been developed by Nissan's European design centre in Paddington, west London - the same design centre responsible for the Qashqai and Juke car models.

Nissan designed the cab at its west London design centre

Nissan has ensured the latest version adheres to the strict Transport for London regulations governing the capital's black cabs, known officially as Hackney Carriages, including the tight 25-foot turning circle.

Equipped with an automatic transmission and a traditional orange taxi sign, the new cab is expected to go on sale in December.

The new Nissan design has been launched less than a year after Chinese carmaker Geely bought Coventry-based cab maker Manganese Bronze in a deal worth £11m.

The purchase was made after Manganese Bronze was placed in administration in 2012.

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Swiss Central Bank Loses £10bn On Gold Plunge

Switzerland's central bank has revealed losses of £10bn in its gold holdings, after prices for the precious metal plunged 28% last year.

The Swiss National Bank (SNB) said the value of its reserves dropped by 15bn francs and as a result would not pay dividends to local ruling cantons - the members of the federal state - or the capital Bern.

The dramatic loss has shown that it is not only small-time investors in gold who have been hit by the metal's slide from nearly $1,700 (£1,038) an ounce in January to just under $1,200 (£732) before Christmas.

Bullion's slump in 2013, the biggest annual decline since 1981, was prompted in part because central banks' quantitative easing failed to stoke inflation and the economy globally strengthened.

The deep Swiss gold loss was offset slightly though gains of 3bn francs (£2bn) on the banks' foreign currency positions, and another increase of 3bn francs on a stabilisation fund it put in place in 2008 to save Switzerland's largest bank, UBS, from collapse.

As a result SNB said it expected to report a total loss of 9bn (£6bn) in 2013, according to provisional figures.

But since SNB needed to put aside 3bn Swiss francs as a provision for its currency reserves, it said it expected to end up with a total loss of about 12bn francs (£8.1bn) in the red.

"As this loss will be substantially larger than the 5.3bn Swiss francs (£3.6bn) in the distribution reserve, the SNB cannot make a profit distribution," the bank explained.

Switzerland's central bank usually hands out dividends to the Swiss confederation and regional cantons.

Last year, SNB reported a 6.9bn franc (£4.66bn) profit and redistributed 2.4bn francs (£1.62bn) of its profit to the Swiss confederation, cantons and other shareholders.

The bank said it would announce its full results on March 7.

Global demand for gold is driven in large part by South and South East Asia, and in particular China.

Chinese buyers have rejoiced at the price drop ahead of the traditional peak purchase period before the lunar new year.

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Osborne: We Need To Cut An Extra £25bn

A further £25bn of cuts - including £12bn from benefits - must be made after the next election if the Government is to eliminate the UK's deficit, Chancellor George Osborne has said.

Mr Osborne, who set out his priorities for the next 12 months in a speech saying 2014 will be "the year of hard truths", argued that the size of the state and the welfare system must become "permanently smaller".

He claimed Labour was "simply not being straight with people" by suggesting there was a "magic wand" which would allow a chancellor to spend more on public services.

Mr Osborne said: "Thanks to the hard work of the British people, our economy is on the mend - and our country is doing better.

Mr Osborne meets graduate apprentice Tom Mosdale (left) in Birmingham

"But what was hard won can be easily lost. So we have a choice in 2014. We can give up, go back to square one, risk everything.

"Or we can confront the hard truth that more difficult decisions are needed - and work through the plan that is turning Britain around. I say: 'let's finish the job'."

"Welfare cannot be protected from further substantial cuts.

"I can tell you today that, on the Treasury's current forecasts, £12bn of further welfare cuts are needed in the first two years of the next Parliament."

And he said curbing public spending was the only way to ensure future jobs and prosperity.

"Government is going top have to be permanently smaller - and so too is the welfare system," he said.

Mr Osborne has also indicated he supported keeping benefits for pensioners such as winter fuel payments and free bus passes.

Nick Clegg said the Tories were making a 'monumental mistake'

Instead he told BBC Radio 4's Today programme he would look at targeting housing benefits for under 25s, and means-testing social housing.

But Deputy Prime Minister Nick Clegg said Conservatives were making a "monumental mistake" in seeking "cuts for cuts' sake" and placing the burden of future deficit reduction on benefit claimants alone.

The Lib Dem leader told a Westminster press conference that the major parties were now putting forward "three very different visions" for how to balance the books, create economic stability and support public services.

Mr Clegg said Liberal Democrats agreed on the need for fiscal responsibility to deal with the deficit by 2017/18, but the "big difference" from Conservatives was that "we believe that the way we finish that job should be done fairly".

Shadow Chancellor Ed Balls said: "George Osborne is desperate to stop talking about the cost-of-living crisis on his watch. But that won't stop working people from doing so as they are on average £1,600 a year worse-off under the Tories and prices are still rising faster than wages.

"Nor will the Chancellor admit the reason why he is being forced to make more cuts is because his failure on growth and living standards has led to his failure to balance the books by 2015."

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Watchdog: No Win, No Fee Promise Is False

So many claimants are facing unexpected or illegitimate bills from "no win, no fee" law firms that the phrase should be scrapped, a watchdog has said.

In a damning report, the Legal Ombudsman said it dealt with around 600 cases last year where "no win, no fee" lawyers wrongly billed clients for "significant and unexpected costs".

As a result, it ordered firms to pay almost £1m in compensation.

It blamed an "increasingly aggressive" market for encouraging firms not to vet cases properly and then to resort to "unethical practice".

Lawyers were "tempted to try and pass the risk to on to a customer or simply go back on the terms of the agreement to get out of a problem they created", the report said.

Others failed to explain complex contracts sufficiently clearly to clients.

One victim was handed a £24,000 costs bill for a successful outcome to his case - despite the law firm having withdrawn and left him to represent himself.

The system was introduced in 1995 as a replacement for taxpayer-funded Legal Aid to enable people to afford to pursue civil claims such as car crash injuries, employment disputes or medical negligence.

Abuses were not yet widespread, the report concluded, but swift action was needed by professional bodies and regulators to ensure it was stamped out before it spread.

Chief Ombudsman Adam Sampson told Sky News: "'No win, no fee' is an apparent promise that lawyers and claims manage. That promise in many cases is just not real - it's a false promise and what happens is that lawyers exploit the loophole in conditional fee arrangements."

He said the report raises genuine questions as to whether the "no win, no fee" label should be used at all.

Warnings have previously been issued by the Advertising Standards Authority about "misleading" commercials which fail to explain that clients can become liable for some costs.

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