BBA In Talks About Payments Council Merger

By Mark Kleinman, City Editor

The banking industry's main lobbying group is considering proposals to merge with at least two of its peers amid pressure from leading members to reduce costs levied by trade organisations.

Sky News understands that the British Bankers' Association (BBA) discussed potential mergers involving the Payments Council and the UK Cards Association at a board meeting last week.

The talks were preliminary and it is unclear whether either idea will progress to a more formal stage, according to one person familiar with the talks.

The discussions come at a time of significant structural change in the banking industry and associated sectors, with a new payments industry regulator introduced by next April to oversee the infrastructure which processes £75 trillion in annual payments.

"There are lots of conversations taking place about what the future will look like and how the industry organises itself," said one insider.

It is not the first time the BBA has examined a combination with one of its peers.

In 2012, it looked at a possible tie-up with the Council of Mortgage Lenders (CML) but the idea did not progress.

That followed the loss of the BBA's revenues from administering the Libor benchmark rates, a role it gave up in the wake of the manipulation scandal which cost the chairman and chief executive of Barclays their jobs.

The BBA previously generated millions of pounds each year from selling licences to data providers to allow them to publish Libor benchmark data.

Sources said that Libor accounted for roughly 20% of the BBA's revenue before oversight of the benchmarks switched to third parties last year.

Fees for membership of the BBA are paid on a sliding scale dictated by a bank's size, with major high street lenders such as Barclays and Royal Bank of Scotland paying the largest sums.

Last year, the BBA received just over £7.5m in subscription fees, up from £6.2m in 2012.

Bank executives say they are anxious to keep a lid on the cost of trade body memberships at a time when their businesses are under myriad other cost pressures.

The BBA and Payments Council declined to comment.

A spokesman for the UK Cards Association said: "The UK Cards Association is the independent trade association for the card payments industry. We have had no merger discussions with any organisations, and are continuing to provide independent representation for our members across issues concerning card payments."

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Top City Banker To Pay £450,000 FCA Penalty

By Mark Kleinman, City Editor

One of the City's top financiers is poised to pay a £450,000 fine after deciding to accept a market abuse ruling by the Financial Conduct Authority (FCA).

Sky News understands that Ian Hannam, a banker who became known as the 'king of mining M&A' after engineering some of the world's biggest natural resources mergers, is to accept the watchdog's original verdict after losing an appeal in May.

An insider said on Friday that a statement from the FCA confirming that the original decision is to be upheld is expected as early as next week.

Mr Hannam, who had a long career at JP Morgan Cazenove before leaving in 2012, was accused by the FCA of inappropriately disclosing inside information in 2008 about Heritage Oil, a client, to a potential buyer.

He had argued that the FCA's ruling was erroneous and that he acted in accordance with City rules, vowing to fight the decision.

The regulator did not accuse or find Mr Hannam guilty of deliberately setting out to commit market abuse or accuse him of lacking honesty or integrity.

The Upper Tribunal of the High Court rejected his appeal in a judgement which was greeted by relief at the FCA but which raised questions about the clarity of guidelines about acceptable City conduct.

Both parties are understood to have made representations about the scale of the fine following the verdict of the Upper Tribunal, which said:

"Although the parties' written submissions did say something about the appropriate penalty if Mr Hannam had been engaged in market abuse, we consider that we cannot properly deal with this aspect of the case without giving the parties the opportunity to make further submissions in the light of our findings on the substantive issues.

The tribunal and the parties will need to consider the best way forward procedurally for dealing with the question of penalty."

The ruling left open the question of whether the penalty imposed on Mr Hannam should be increased or decreased.

Mr Hannam, who received backing from a number of prominent City figures and company bosses during his appeal, is said to have racked up legal fees of approximately £1m during his case.

Since leaving JP Morgan, he has rebuilt his career, taking control of a number of businesses in the mining and resources industries.

He has also given financial backing to Heathrow Hub, one of the shortlisted candidates for expanding runway capacity in south-east England.

Spokesmen for Mr Hannam and the FCA declined to comment on Friday.

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Malaysia Airlines Offers Passenger Refunds

Malaysia Airlines is to refund fares for passengers no longer wishing to travel on the carrier, Sky News has confirmed.

Previously booked passengers due to fly up to and including July 25 can seek a refund without incurring any penalty.

The decision comes amid a wave of concern following the downing of MH17 over eastern Ukraine.

It is unclear how many passengers will cancel their flights.

Nevertheless, the refund will further harm the perception of the carrier both for passengers and investors.

Shares in Malaysia Airlines closed down more than 10% on Friday.

The Kuala Lumpur-listed company saw its stock fall more than 17% at one point before easing prior to the market close.

"Perception-wise it really hits home - It's very challenging. It's very difficult to fight against negative perception," Maybank aviation analyst Mohshin Aziz said.

"I can't comprehend of anything they can do to save themselves."

Many of the carrier's woes precede the loss of MH370 earlier this year

The company has struggled recently, and its accounts have been in the red for the last three years.

In 2013, the airline's full-year losses grew to £215m - up almost threefold on the 2012 loss of £80m.

The Malaysian government owns 69% of the firm.

As a state-owned flag carrier, it is required to fly unprofitable domestic routes, and its strong union has resisted operational changes.

Budget rivals have adapted to the changing air market, particularly in Asia, with greater speed than legacy carriers such as Malaysia.

Many of its woes precede the mysterious loss of flight MH370 in the Indian Ocean.

Airline Weekly managing partner Seth Kaplan described it as being in "worse shape" financially than almost all other carriers - even before MH370 vanished.

"It's just hard to imagine that they could have even survived the first incident without a lot of government help and now they're going to need even more," Mr Kaplan said.

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BBA: City Sanctions Regime Needs Overhaul

By Mark Kleinman, City Editor

Procedures for punishing bankers who breach City rules require urgent changes, including the option of "part-settlement" of cases brought by regulators, the banking industry lobbying group has said.

In a submission to the Treasury obtained by Sky News, the British Bankers' Association (BBA) accused financial watchdogs of lacking objectivity and transparency.

It said the Regulatory Decisions Committee (RDC), which scrutinises judgements made by the Financial Conduct Authority (FCA) should be reformed to guarantee its independence.

"There are ... questions about the extent to which the RDC can be said to be truly independent of the FCA's enforcement function," the BBA said.

"This raises doubts over whether the arrangements can be said to provide a true 'check and balance' on the enforcement function's powers."

The RDC could be replaced by a body which sits within the FCA but is autonomous, "possibly with a lay majority and a chair with senior judicial experience", the BBA added.

The BBA was responding to a review launched in May by George Osborne.

The Chancellor has made toughening the sanctions regime a priority as he seeks to demonstrate that the Government is intent upon punishing past miscreants.

In a speech last month, he said he wanted to make the manipulation of financial benchmarks such as the gold-fix and foreign exchange rates a criminal offence.

The Sunday Times reported that the Serious Fraud Office was poised to announce a criminal probe into alleged forex-rigging as soon as this week.

The consultation on the use of enforcement powers follows a string of cases involving prominent bankers.

"For enforcement action to be effective, wrongdoers must believe that they face a real and tangible risk of being held to account and must expect to face meaningful and proportionate sanctions," the Treasury said in May.

Some of the FCA's actions, such as a decision to fine Ian Hannam, a former JP Morgan executive, for inappropriately disclosing inside information, have faced criticism in the City.

Decisions by the FCA's predecessor body, the Financial Services Authority, relating to the near-collapse of HBOS also face scrutiny as part of a probe of the bank's troubles.

The BBA said in its submission to the Treasury that an appeals process and enforcement panel set up by the energy industry could provide a model for the financial services sector.

The lobby group also said the enforcement process could be accelerated, with additional communication with those under investigation desirable.

Under the current system, cases can only be settled in full, but the lobbying group insisted that introducing scope for part-settlement could "significantly strengthen decision-making".

The BBA added that actual rather than potential losses to consumers should be taken into account by regulators when calculating punishments, and said that the self-reporting of misconduct "could be given a more positive emphasis and better incentivised".

And it criticised regulators for their approach to enforcement actions, accusing them of requesting information whose "relevance...is not always immediately apparent".

It said the subjects of investigation were also frequently left in the dark about the detailed reasons underlying the probes.

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Newly-Listed TSB Says Yes To £1.4bn UKAR Bid

State 'Bad Bank' Plots £1.5bn Mortgage Sale

Updated: 3:07pm UK, Tuesday 03 June 2014

By Mark Kleinman, City Editor

The state-owned 'bad bank' which holds the remnants of Bradford & Bingley and Northern Rock is to sell a £1.5bn mortgage portfolio that will attempt to exploit buoyant demand for UK housing market assets.

Sky News has learnt that UK Asset Resolution (UKAR) has hired investment bankers at Credit Suisse to market the loans, with the agency understood to be determined to secure a sale price at close to or better than the book's par value.

Prospective buyers are likely to include investment funds and a number of UK high street lenders, sources said on Tuesday.

The auction will represent the first such transaction since July 2012, when UKAR agreed the sale of £465m of Northern Rock Asset Management (NRAM) mortgages to Virgin Money.

The proceeds of that sale were used to repay part of NRAM's loan from the Government, which enabled it to stave off outright collapse in 2008.

Since then, the most significant deal involving UKAR took place last year, when NRAM's portfolio of standalone unsecured personal loans was sold to OneSavings Bank plc and Marlin Financial Group for a combined price tag of £400m.

News of the latest sale process emerged on the day that UKAR trumpeted its return to the taxpayer of roughly a quarter of the £38.3bn loan it took on six years ago.

Richard Banks, UKAR chief executive, said the results represented "good progress" for the taxpayer-backed organisation.

"It is also pleasing to see the significant reduction in arrears due to the dedication and professionalism of colleagues proactively working with our customers to help them achieve the right outcomes."

He went on to warn, however, that the prospect of rising interest rates would be a significant obstacle for many of its 467,000 customers.

"The signs are that the UK economy is continuing to recover, both in terms of growth and employment and in the housing and mortgage markets," UKAR said.

"House prices have increased faster than expected over the past 15 months, which, combined with continued low rates of interest, is good news for our customers and has driven increased redemption activity.

"However, despite the more positive conditions, many households continue to be under financial pressure. This, together with the prospect of interest rate rises and higher mortgage payments, will be a concern for many of our customers."

That warning echoes those of leading public figures in recent weeks, with representatives of major housebuilders due to meet Vince Cable, the Business Secretary, and George Osborne, the Chancellor, this week.

UKAR declined to comment on the new mortgage sale.

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UK Economy Forecast To Outstrip Global Rivals

The UK economy is forecast to grow faster this year than any other country in the group of G7 developed nations.

A report by the Ernst and Young Item Club - an influential economic forecasting group - predicts GDP will hit 3.1% this year.

But it says slow wage growth will keep interest rates on hold until the first quarter of next year.

Its chief economic adviser Peter Spencer said: "The markets are jumping the gun in thinking that rates will rise this year.

Property prices are forecast to leap this year due to a shortage of housing

"Low inflation, the strong pound and ongoing risks from the eurozone all suggest caution in raising rates."

The predicted growth in the UK's GDP, driven by business investment rather than consumer spending as has been the case up to now, compares with forecasts this year of 1.8% for Germany and 2% for Canada.

Mr Spencer said: "What a difference a year makes. Last summer any growth looked better than no growth and the outlook remained uncertain.

"But, confidence has now returned and economic uncertainty has dropped well down the worry list."

The report forecasts the UK economy will enjoy "a perfect combination" of consumer spending financed by strong employment, rather than wage growth and borrowing, accompanied by low inflation and low interest rates.

The survey also expects investment in the housing market to rise from 7.6% this year to 13.4% in 2016 as the industry, helped by measures such as the Government's Help to Buy scheme, gains confidence.

But because of a shortage of housing stock the report estimates house prices will jump 9.1% this year, 7.4% next year, before slowing to 4.2% in 2016.

Mr Spencer added: "Investment in our housing stock is much lower than it needs to be in order to put a roof over the head of the UK's growing population."

The property website Rightmove has also raised its forecast for annual house price growth in 2014, despite a fall in values this month for the first time this year.

House prices have fallen 0.8% so far this month, but the firm forecasts annual prices will lift 8% this year, boosted by the Help to Buy scheme.

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Scotland Currency Union? 'It's A Dead Parrot'

The idea Scotland would be able to hold on to the pound in the event of independence is a "dead parrot", MPs have warned.

The country's first minister was told he urgently needed to come up with a plan B on how Scotland would proceed without a "currency union" if there was a "yes" vote in just two months' time.

A report from the Scottish Affairs Committee cautioned the Scottish Government there was no way there would be a formal deal for an independent Scotland to continue using sterling.

In a reference to the Monty Python sketch in which a shopkeeper and his customer argue over the state of a Norwegian Blue parrot - which is being revived in a run of heavily promoted live Python shows in London - Ian Davidson, chairman of the committee, said: "The Scottish Government tries to give the impression that a currency union is still a possibility. It is not. This parrot is dead."

The report by the committee said: "If Scotland leaves the United Kingdom there will not be a currency union.

"Voters urgently need to be told what the Scottish Government has as a Plan B."

Pythons John Cleese and Michael Palin perform their famous sketch at the O2

Chancellor George Osborne and the Chief Secretary to the Treasury Danny Alexander have both ruled out currency union, as has the shadow chancellor Ed Balls.

The report also gave warning Scotland's financial services could suffer if the country votes to leave the UK and the Alex Salmond must give voters information on how he "intends to protect the thousands of jobs dependent upon this vital part of the Scottish economy".

It continued: "We have already seen evidence that significant Scottish financial services companies are preparing to relocate their headquarters, with the consequent effect on Scottish jobs and the Scottish economy, in the event of separation."

Standard Life, which has been based in Scotland for 189 years and employs around 5,000 people there, announced in February it was drawing up a contingency plan to leave in the event of independence.

A spokesman for the First Minister branded the report "lame" and said: "An independent Scotland will keep the pound - as conceded by the unnamed UK minister caught telling the truth by saying 'of course' there will be a currency union.

"The pound is as much Scotland's as it is England, Wales and Northern Ireland's."

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Savers To Get Free Advice On Pension Pots

Millions of people are to be given free, impartial advice on how to make the most of their retirement savings.

It follows changes announced by the Chancellor in the Budget, which give savers more flexible access to their pension pots and crucially, not forcing them to buy an annuity, but allowing them to use their money as they see fit.

The radical pensions shake-up sparked concerns at the time this greater freedom could see pensioners blow their savings early in retirement and run out of funds.

Pensions Minister Steve Webb said savers should be able to buy Lamborghinis

Liberal Democrat Pensions Minister Steve Webb came in for criticism for suggesting that if pensioners wanted to "buy Lamborghinis" with their money they should be able to.

There were also warnings of fraudsters offering bogus advice and investment packages.

Acknowledging people needed to make informed decisions, the Government said it would guarantee "free, impartial face-to-face guidance" for individuals reaching retirement.

Mr Osborne told Sky News: "People want to have somewhere they can go to which is impartial.

"Then they will feel better equipped to make choices about which company they then go to, to buy a product that supports them in their retirement."

Assistance to savers will be provided by a range of independent organisations, including The Pensions Advisory Service (TPAS) and the Money Advice Service (MAS) and follows concerns consumers would not trust information given by organisations with a vested interest in selling a financial product or service.

The Government acknowledges people need to make informed decisions

In total, 18 million people will be able to benefit from the changes to pensions should they wish to do so, the Treasury said.

Pensions expert Ros Altmann, the Government's older workers' business champion, said: "The decision that guidance must be impartial and separate from the industry is a real game-changer and will help equip people to make the right decisions for them.

"The challenge is now firmly with the industry to develop the products that people need, rather than simply the products they wish to sell."

Caroline Rookes, chief executive of MAS said: "Planning for retirement is a crucial life stage, and it is important that people feel well-informed and confident in the decisions they make."

As part of the pensions overhaul, people approaching retirement will be given an estimate of when they might die.

A measure of life expectancy, linked to factors such as smoking, eating habits or socio-economic background, will be part of Government backed "guidance" to help pensioners plan how much to spend and save.

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Tesco Chief Philip Clarke To Step Down

Tesco's chief executive Philip Clarke is to quit after a string of poor results for the supermarket giant.

The group, which is seeing its worst sales performance in four decades, announced Mr Clarke's departure as it issued a fresh warning on profits.

He will stand down on October 1 and will be replaced by Dave Lewis from Unilever, who is a non-executive director of BSkyB, owner of Sky News.

The retailer is battling to stop a decline in sales figures

Tesco's sales fell by 3.7% in the three months to May 24 on a like-for-like basis, an acceleration of the 3% slide in the previous quarter.

Mr Lewis will receive a basic salary of £1.25m, plus "standard" benefits. He will also receive £525,000 in lieu of his current year cash bonus from Unilever

Mr Clarke, who earned £1.14m in the role, will get a payoff worth 12 months salary.

When Mr Clarke took over from Sir Terry Leahy in March 2011, the Tesco share price stood at 400p, but are now trading at 291p - equating to a shareholder loss of £8.8bn.

Dave Lewis is to bag a salary of £1.25m in his new role

Tesco chairman Sir Richard Broadbent said: "Having guided Tesco through a substantial re-positioning in challenging markets, Philip Clarke agreed with the Board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile."

He added: "Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development."

Mr Clarke said: "Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility and I am delighted that Dave Lewis has agreed to join us.

"Dave has worked with Tesco directly or indirectly over many years and is well-known within the business. I will do everything in my power to support him in taking the company forward through the next stage of its journey."

Tesco's market share has fallen by more than two percentage points

But Sky's City Editor Mark Kleinman said the appointment of Mr Clarke's successor represents a gamble.

He said: "Dave Lewis, a 25-year veteran of Unilever, the consumer goods giant behind Dove, Lynx and Marmite, is the first outsider to take the helm of Tesco in its 95-year history."

Mr Clarke, who had worked his way up from the shop floor to head Tesco, admitted last month the chain's sales figures were the worst he had known in 40 years.

But a trading update said conditions were more "challenging" than predicted.

The group said: "The overall market is weaker and, combined with increasing investments we are making to improve the customer offer and to build long-term loyalty, this means that sales and trading profit in the first half of the year are somewhat below expectations."

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Fraud Probe Into Foreign Exchange Market

The Serious Fraud Office has opened a criminal investigation into allegations of fraud in the foreign exchange market.

Britain's financial watchdog Financial Conduct Authority (FCA) in October joined other regulators around the world in investigating whether traders at some of the world's biggest banks rigged the £3trn-a-day market in Britain.

Some 40% of world's foreign exchange trading is done in London.

The SFO has refused to confirm which City institutions may be under investigation, but has told Sky News a range of individuals and banks will be subject to the inquiry.

Earlier this year, Martin Wheatley, the FCA head, said the allegations were "every bit as bad as they have been with Libor".

Only last week, the boss of Royal Bank of Scotland said an investigation into alleged manipulation of foreign exchange markets could pose a bigger problem for the industry than the Libor interest rate-rigging scandal.

RBS paid out £358m last year to settle claims it manipulated Libor rates.

It was one of several banks hit with large fines for rigging financial benchmarks.

Asked if the foreign exchange probe could be a bigger problem than Libor, RBS chief Ross McEwan said: "Unfortunately, it has then hallmarks."

He added: "We're still doing a lot of investigation.

"We're going through just millions and millions of emails, chatrooms, conversations to see what actually went wrong.

"Unfortunately, I have the feeling that this is a sort of Libor case again.

"The difference this time is that we haven't sat back and denied it. We've gone into it and are doing the investigation hand-in-hand with the authorities."

He said it was another problem from the past that banks had to deal with in order to move on.

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