PM Sunak faces a very different economy to the one he left as chancellor

26TH OCTOBER 2022

By Alan Shipman, Senior Lecturer in Economics, The Open University

As the incoming UK prime minister, Rishi Sunak has the immediate advantage of perceived success in his two years as chancellor. His tenure ended last July when he resigned due to a difference of opinion with then-prime minister Boris Johnson over the economy. But during his time as chancellor, he is credited with rescuing households and businesses from the effects of the COVID pandemic lockdowns by launching an innovative and impressively timely furlough scheme. He reversed a “small state” approach to become the private sector’s temporary paymaster, spending an unprecedented £70 billion to shorten the recession.

This image of having saved the nation by minimising the loss of national output and employment during the pandemic has outshone the less successful moments of his chancellorship. This includes inadequate fraud-proofing of furlough supports, the coronavirus surge that followed his “eat out to help out” hospitality revival scheme and the discussion of his well-sheltered family finances.

But as he takes up the UK’s highest office, the economic supports that enabled the furlough scheme have largely fallen away. The government’s long-term borrowing costs, previously close to zero, had risen above 5% by mid-October, even with the Bank of England shoring up demand to keep bond yields down. At the same time, consumer borrowing has also risen in cost, dowsing any hope of a post-pandemic bounce-back of growth-promoting investment.

The UK now faces a worsening credit rating, which is adding to the risk premium (and therefore cost) that investors place on public debt. And consumers are unlikely to spend their way out of the expected recession. Millions are already struggling to meet rising food, fuel and mortgage bills, knowing their energy costs could jump again when the current price cap ends in April 2023.

In the US, where Sunak earned his MBA and made his fortune, post-crisis presidents are often seen as “Lone Ranger” figures. They ride into town (with a masked companion) to resolve a desperate situation, winning over an initially sceptical public with effective steps that overcome past rivalries and injustices.

Contemporary American Conservatives have emphasised additional plot twists: the Ranger must overcome prejudices and sidestep rigid laws to save the day. This certainly speaks to the task ahead for Sunak as he becomes the fifth UK prime minister in six years.

Staggering under stagflation

Unusually, UK firms are experiencing widespread labour shortages right now, among other supply constraints that usually characterise the peak of a boom rather than the brink of a recession. That’s down to the decade-long stagnation of UK labour productivity. This is a problem that Sunak as a backbencher wanted to tackle with doses of deregulation and labour-market discipline, but which as chancellor he left unresolved.

Productivity growth picked up after the UK propelled the EU to complete its single market from 1992. So Sunak’s support for leaving the EU remains an obstacle to his re-uniting the Conservatives and rebuilding badly burnt bridges with European trade partners. Their importance has been heightened by the declining chance of any transatlantic trade deal and the slowdown in the Chinese economy, which will dampen growth across emerging Asia.

So what’s a new prime minister to do? Having resigned from the cabinet in July, triggering the very Conservative infighting that has now led him to the top job, Sunak can leave the difficult fiscal choices to Jeremy Hunt, his successor as chancellor. But the prime minister still bears ultimate responsibility for the direction the government takes to deal with the economy. Hunt’s statements so far have rescinded most of Kwasi Kwarteng’s mini-budget, indicating that the new government has no room for tax reduction and could be preparing for more painful cuts in public spending instead.

If Hunt sticks to the Conversatives’ election-winning 2019 pledge of no rises in income tax, VAT or national insurance, the government will probably need to deploy “stealth taxes”. This means leaving working people to be taxed more as their wages rise to keep pace with prices while a four-year freeze in tax thresholds imposed by Sunak is still in place. Social benefits could also be allowed to erode through being raised by less than inflation.

The present high rate of inflation would also, in the past, have eased the government’s financial pressures by eroding the costs of public and private debt. But that shield has worn thin. Payments on 25% of the government’s debt are now aligned with the inflation rate, and lenders are rapidly passing on the rise in borrowing costs to mortgage and credit card borrowers.

Former prime minister David Cameron could cite an outgoing Labour government’s budget hole for earlier austerity rounds. But Sunak will struggle to blame his predecessors for the new fiscal squeeze the UK faces. Supporters of Kwarteng are likely to continually remind him – as ex-prime minister Liz Truss did on her way to beating him in the previous leadership contest – that tightening fiscal policy now will only deepen the recession predicted by the Bank of England and many independent analysts.

The rescuer from Number 11 must become “Austerity Rishi” now he’s moved next door. This could make it far more difficult for the Lone Ranger to ride into the sunset after saving the day.

theconversation.com/uk

BOTH ARE TAX CHEATS

Britain's new Prime Minister and his wife are far richer than King Charles III and Camilla

Stewart Perrie

Published  26 October 2022 

Featured Image Credit: PA Images / Alamy Stock Photo. David Levenson / Alamy Stock Photo

Rishi Sunak's and his wife Akshata Murty's reported wealth has been revealed after he become the UK's newest Prime Minister and it's simply jaw-dropping.

Sunak and Murty have built up a sizeable fortune over the years and it's even bigger than the biggest name in British culture.

The Sunday Times Rich List places Rishi and Akshata's wealth at a casual £730 million (AUD$1.3 billion).

While you might gawk at such a figure and cry into your beans and toast, that only makes them the 222nd richest people in the UK.

Imagine more than 200 people being richer than you when you have three-quarters of a billion dollar fortune.

Rishi Sunak is anticipated as becoming the UK's next Prime Minister. Credit: Russell Hart/ Alamy Stock Photo

Sunak and Murty's wealth is more than double that of King Charles III and Queen Consort Camilla

The Guardian says the new British King and his wife have a fortune that ranges from £300 million (AUD$536 million) to £350 million (AUD$626 million).

News Corp reports Rishi Sunak is expected to be one of the richest Prime Ministers in UK history; that is, if he's not on the top of that list.

He earned a sizeable wealth from his days as a hedge fund manager before moving into politics.

However, it's his wife's investments that see the power couple have such an eye-watering fortune.

Akshata is the daughter of one of India's richest men, N.R. Narayana Murthy, who is the founder of tech giant Infosys.

Her stake in the company is worth around £690 million (AUD$1.2 billion), according to news.com.au.

Murty's father issued a statement to Bloomberg after Rishi was confirmed to be Britain's next Prime Minister.

“We are proud of him and we wish him success. We are confident he will do his best for the people of the United Kingdom," he said.

Credit: PA Images / Alamy Stock Photo

Sunak was elected the new PM after Liz Truss revealed she was stepping down from the top job.

The former chancellor, 42, became the outright favourite to hold the position after former Prime Minister Boris Johnson said he would not be announcing a leadership bid.

When announcing his renewed bid to become Prime Minister, Sunak - who worked as Chancellor of the Exchequer promised to lead the UK with 'integrity, professionalism and accountability'.

His statement read: "The United Kingdom is a great country but we face a profound economic crisis.

"The choice our Party makes now will decide whether the next generation of British people will have more opportunities than the last.

"That's why I am standing to be your new Prime Minister and Leader of the Conservative Party. I want to fix our economy, unite our Party and deliver for our country.

"I served as your Chancellor, helping to steer our economy through the toughest of times."

“Sunak, the Messiah? No, he’s a very naughty, naughty little boy!
October 26, 2022,  

Arup Ganguly in Brit Eye for an Indian Bhai, India, World, TOI

British Indians, across the length and breadth of the U.K., were “cock-a-hoop” yesterday, as one Tory MP put it (who says that anymore?). Indeed, this year’s Diwali delivered a very special gift. Our first brown Prime Minister; the historical significance of the moment was overwhelming for many. The inevitable Ram & Sita memes were doing the rounds like a whirling Dervish (“Dervish”, who says that anymore?) and the queue of Indian parents outside Winchester College, looking to enroll their offspring, has grown exponentially overnight. Poor little Asian kids; becoming a doctor is no longer good enough. However, we would do well to remember that while Lord Ram returned to Ayodhya having soundly vanquished his foes, Rishi Sunak has reached his summit purely through attrition i.e. he hid under a table while all the other candidates either withered away or imploded of their own accord. Moreover, if there had been another nominee and the vote had gone to the membership, it’s quite doubtful that the largely white congregation would have voted for him. Let’s also not forget that it was Rishi and his Brexit pals that created the economic debacle that caused the leadership crisis in the first place.

This is our “Obama moment” someone gushed at me over dinner last night. “Oh Purleeez” I responded. Let’s not get carried away and put Sunak in the same league as a seasoned international statesman like Obama. Sunak, who’s only been a serving MP for the last seven years, has little to no diplomatic credentials nor the gravitas to match. Skills that are critical at present given the heightened geopolitical tensions in Europe and the far east. Rishi is a chancer by comparison. Also, importantly, Obama won a general election and wears full length, big boy trousers unlike our leader.

As for calling out the gaping chasms in his predecessor’s mini budget, a lobotomized apricot could see the problems with embarking on an unfunded programme of huge tax cuts. No one was surprised that Liz Truss didn’t have a Scooby Doo (clue) about public finances, so it’s hardly something to hang one’s hat on.

Moreover, it was the Tory Party’s ill-conceived Brexit project, built on fables and lies, that precipitated the UK’s financial woes in the first place. Anyone who hasn’t figured out that leaving the largest free trading bloc in the world was only going to lead one way, having already knocked around 5% off our GDP (by some estimates), needs to wake up. Brexit was always about creating enough dislocation to create excess gains for the elite few at the expense of the majority. Rishi Sunak was and is a hardcore champion of that Brexit agenda.

As a result of the last few weeks of economic turmoil, caused almost completely by the battle for supremacy within the Tory Party (three different PM’s in the last three months), Sunak will now have to embark on a programme of tax hikes and severe public spending cuts. This on top of the burgeoning energy costs and climbing interest rates only spells more misery for the average family. Yet the government still refuses to tax those who are making super profits at this time – the energy companies.

Rishi has to get Brexit “really” done i.e. fix the highly contentious and potentially flammable Irish border issue, get inflation under control and bring interest rates back down, bag some significant international trade deals, not kill the public sector through a programme of austerity while still reducing government borrowing, get immigration under control (to keep the party hard liners happy), reduce regional economic disparities (so called “level up”) and unite the party which has been left deeply fractured by endless internal battles. That’s just the in-tray on day one. All the while, Boris Johnson (still fantasizing about rising awkwardly like a rather odd shaped phoenix from the burnt remnants of his political career) will be waiting in the wings, plotting and attempting to destabilise the Sunak government; not to mention the opposition party who are way ahead in the polls and baying for a general election now.

There’s no doubt that Rishi is the best qualified candidate the Tories have at this moment (the best of a bad bunch if you will) and his appointment, certainly in the short term, will give financial markets a much needed breather from all the recent volatility. However, if “Rishi Rich” fails, we could see GBP fall below the US Dollar, the UK losing whatever global status and influence it has left (both politically and economically), the price of goods and services continue to rise, potential social unrest and the country heading to a general election and yet another PM sooner rather than later. That’ll be it for another non-white PM for a while. It will also prove an existential moment for the Tories who will probably be sent into exile for a generation and deservedly so. From the Empire to Brexit chaos, a three-hundred year, right wing programme of greed is finally coming to a conclusion, one way or another.

Arup Ganguly has spent 27 years in the global banking sector and currently sits on the boards of several companies in the tech and finance space. Arup has been a guest columnist 

 CRIMINAL CAPITALI$M

UK FCA fines Barclays £50m over 2008 Qatari fundraising

By NS Banking Staff Writer  24 Oct 2022

The UK financial watchdog found that the British bank failed to disclose the payments made as part of the capital raisings or their connection to the Qatari entities’ participation in the capital raisings held in 2008

Barclays fined £50m by the UK Financial Conduct Authority. (Credit: Barclays PLC)

The UK Financial Conduct Authority (FCA) has imposed a fine of £50m on Barclays for allegedly failing to disclose certain agreements reached with Qatari entities as part of its capital raisings announced in 2008.

The UK financial watchdog found that the British bank failed to disclose the payments made as part of the capital raisings or their connection to the Qatari entities’ participation in the capital raisings held in 2008.

According to the FCA, the disclosure of payments would have been highly relevant information to the shareholders and investors, in a situation where the costs of the deal were already seen as highly expensive.

The capital raisings were held at the time of the 2008 financial crisis and were subject to intense market and public scrutiny.

The bank has appealed the FCA’s decision to the upper tribunal for further consideration.

FCA enforcement and market oversight executive director Mark Steward said: “At the height of the financial crisis in October 2008, Barclays paid hundreds of millions of pounds in fees to certain Qatari investors so that they would contribute new capital.

“Barclays did not inform the market and shareholders about these matters as required. Barclays’ failure to disclose these matters was reckless and lacked integrity and followed an earlier failure to disclose fees paid to Qatari investors in June 2008.

“There was no legitimate reason or excuse for failing to disclose these matters, certainly no basis for doing so because of the financial crisis. Due transparency is always critical to financial markets, especially in times of market or financial stress. These findings by the FCA will now be considered by the Upper Tribunal.”

The Authority initially issued warning notices against the bank in 2013.

The investigation was put on hold while the criminal proceedings brought by the Serious Fraud Office against Barclays and others were being resolved. Following the conclusion of those proceeding, the investigation was reopened in 2020.

Credit Suisse is cutting 9,000 jobs

by Sarah Butcher 

A few months ago, it was mooted that Credit Suisse would be cutting 5,000 jobs. That seemed like a lot. Today it's become apparent that it was an understatement. In its announcement of its restructuring this morning, Credit Suisse says it will in fact be doing away with 9,000 people.

It won't happen all at once and it won't all be in the investment bank, but the investment bank will surely bear the brunt of the pain.

Credit Suisse plans to cut its overall headcount from around 52,000 at the end of the third quarter to 43,000 by the end of 2025. 

Not all the cuts will involve people being ejected onto the street. The securitized products group is being purchased by Apollo Global Management, and its staff will go there. The capital markets and advisory business is being spun out into a new and independent bank, CS First Boston and its staff will go there. But Credit Suisse is also cutting 2,700 people from across the bank (5%) of the total in the fourth quarter. 

As the remaining 6,300 people are cut over the next three years, the bank plans to make the most of "natural attrition" and will presumably not be replacing people who leave. It says it intends to practice, "organizational simplification, workforce management and third-party cost management." As part of the latter strategy, it will be cutting consultancy spend by 50% and spend 30% less on contractors. 

The bank isn't explicit about what will happen to jobs in the global markets business. However, risk weighted assets (RWAs) are being cut by 40% in line with the reduction in headcount, which suggests that it's probably time to look for a new job if you're on a capital-intensive desk. The bank says its future markets business, "will include the strongest and most relevant aspects" of its trading capabilities. Unsurprisingly, it also states that the markets business will be "closely aligned" to wealth management and the Swiss bank franchise, while "remaining fully committed to serving institutional clients." Markets will also be reframed as "a solutions provider to third party wealth managers," and will work with the newly independent bankers in CS First Boston.

News of the cuts comes as Credit Suisse announces its results for the third quarter of 2022. The investment bank made a loss of CHF666m during the quarter and has made a loss of CHF1.7bn year-to-date. The losses imply that staff at the bank will have previous year's bonuses clawed back under Credit Suisse compensation rules. As the chart below shows, Credit Suisse's salespeople and traders substantially underperformed rivals in the first nine months of this year. Revenues in the advisory and capital markets business that will become first Boston fell 82% over the period, which doesn't suggest an auspicious start to independence. 

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Credit Suisse asks investors for billions after bumper loss

By Noele Illien, Oliver Hirt and John O'Donnell

FILE PHOTO: A clock is seen near the logo of Swiss bank Credit Suisse in Zurich© Reuters/ARND WIEGMANN

ZURICH (Reuters) - Credit Suisse, battered by years of scandals, plans to raise 4 billion Swiss francs ($4 billion) by selling stock while slashing thousands of jobs and spinning off its investment bank in an effort to recover from a run of heavy losses.

The troubled Swiss bank outlined what its chairman Axel Lehmann dubbed a "blueprint for success", after racking up a 4 billion Swiss franc loss in the third quarter of the year and following torrid weeks for the group.

The announcement fell flat with investors and the bank's stock, which has plumbed record lows in recent weeks, dropped 7.3 percent in early trading.

Credit Suisse clients pulled funds in recent weeks at a pace that saw the lender breach some regulatory requirements for liquidity, the bank said on Thursday, underscoring the impact on its business of wild market swings and a social media storm.

The group added that it was stable throughout.

The turnaround plan has many elements, from cutting jobs to refocusing on banking for the wealthy.

It will cut 2,700 jobs or 5% of its workforce by the end of this year, and ultimately reduce its workforce by roughly 9,000 to about 43,000 by the end of 2025.

The Swiss bank said it also aims to separate out its investment bank to create CS First Boston, focused on advisory and capital markets, and hopes to attract third-party capital and set up a partnership with the new Credit Suisse.

Saudi National Bank, the Kingdom's biggest lender, committed to invest up to 1.5 billion francs in Credit Suisse to achieve a shareholding of up to 9.9% and may may invest in the spun-off investment bank, the Saudi lender said in a bourse filing.

Credit Suisse said it will create a capital release unit to wind down non-strategic, higher-risk businesses, while announcing the sale of a large part of its securitised products business.

JPMorgan analysts said that "question marks remain" over the restructuring of investment banking, adding that the share sale will also weigh on the stock.

The bank's overhaul, aiming to put behind it the worst crisis in its history, is the third attempt in recent years by successive CEOs to turn around the embattled group.

Once a symbol for Swiss reliability, the bank's reputation has been tarnished by a series of scandals, including an unprecedented prosecution at home involving laundering money for a criminal gang.

https://graphics.reuters.com/CREDITSUISSEGP-REVAMP/lbpggrokepq/chart.png

The bank had been rushing to raise money and free up capital by selling assets, keen to limit how much cash it would have to raise from investors to fund its overhaul, handle its legacy litigation costs and retain a cushion for rough markets ahead.

Credit Suisse needs to revamp after a series of costly and morale-sapping blunders that triggered a wholesale change of management.

In refocusing away from risky investment banking to banking for the globe's rich, Credit Suisse is following in the footsteps of its bigger Swiss rival, UBS.

The UBS turnaround succeeded in large part because of a flood of freshly printed money from the world's central banks to reignite the economy during the financial crisis.

Credit Suisse, on the other hand, is attempting to refocus its business in a world facing war, an energy crisis, rocketing inflation and an economic slide.

Last year, the bank took a $5.5 billion loss from the unravelling of U.S. investment firm Archegos and had to freeze $10 billion worth of supply chain finance funds linked to insolvent British financier Greensill, highlighting risk-management failings.

Its deepening problems even put it on the radar of day traders earlier this month, when a frenzy of wild speculation about its health sent its stock price into a tailspin to a record low.

($1 = 0.9858 Swiss francs)

(Additional reporting by Michael Shields in Zurich; Writing by John O'Donnell; Editing by Edmund Klamann)

CRIMINAL CAPITALI$M

Credit Suisse to pay $234 million to settle French tax fraud case

French prosecutors said that Credit Suisse has agreed to pay 238 million euros ($234 million) to settle tax fraud allegations, the latest blow for the embattled Swiss bank


AP | Paris
Last Updated at October 24, 2022 

Photo: Bloomberg

French prosecutors said Monday that Credit Suisse has agreed to pay 238 million euros (USD 234 million) to settle tax fraud allegations, the latest blow for the embattled Swiss bank.

The bank will pay 123 million euros in fines and 115 million in damages and interest to France, whose investigators will close an inquiry launched in 2016 on possible charges of aggravated tax fraud laundering and illegal soliciting, French prosecutor Jean-Franois Bohnert said in a statement.

French media have reported that Credit Suisse representatives courted wealthy French customers to persuade them to open accounts with the bank that weren't declared to French tax authorities.

Credit Suisse says it doesn't acknowledge criminal liability in the settlement.

The bank is pleased to resolve this matter, which marks another important step in the proactive resolution of litigation and legacy issues," the company said in a statement.

It comes just a week after Credit Suisse agreed to pay USD 495 million in a U.S. settlement over a yearslong dispute tied to mortgage-backed securities, an investment vehicle that played a central role in the 2008 financial crisis.

The settlements are just the latest of a string of woes for Credit Suisse, including bad bets on hedge funds and a spying scandal involving UBS.

A Swiss court fined the bank more than USD 2 million in June for failing to prevent money laundering linked to a Bulgarian criminal gang more than 15 years ago.

CEO Thomas Gottstein announced in July that he was resigning after 2 1/2 years in the job as the bank posted a net loss of 1.6 billion Swiss francs (about USD 1.7 billion) in the second quarter.

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Credit Suisse reaches €238m settlement to resolve French legacy case

BANKING SERVICESINVESTMENT BANKING

By NS Banking Staff Writer  25 Oct 2022

The agreement with the Parquet National Financier (PNF) will resolve a legacy investigation into Credit Suisse’s role in helping clients in France to avoid paying taxes on their wealth, between 2005 and 2012

Credit Suisse headquarters in Zürich (Credit: Roland zh/Wikipedia)

Swiss investment bank Credit Suisse has reached €238m settlement with France, which resolves a legacy tax fraud and money laundering case against the bank.

The bank has signed an agreement with the Parquet National Financier (PNF), a judicial institution in France responsible for tracking down economic and financial crime.

Under the terms of the agreement, Credit Suisse will pay a public interest fine comprising a profit disgorgement of €65.6m, an additional amount of €57.4m, and €115m in damages to the French State.

The agreement will terminate an investigation into the Swiss bank’s role in helping the clients in France to avoid paying taxes on their wealth.

The alleged scheme, which took place in several countries between 2005 and 2012, caused fiscal damage of more than €100m to the French state, reported Reuters.

Credit Suisse, in its statement, said: “The settlement does not comprise a recognition of criminal liability. The bank is pleased to resolve this matter, which marks another important step in the proactive resolution of litigation and legacy issues.”

Earlier this month, Credit Suisse reached a $495m settlement to resolve legacy cases related to its Residential Mortgage-Backed Securities (RMBS) business in the US.

The Swiss investment bank has signed the agreement with the New Jersey Attorney General (NJAG), to resolve claims related to more than $10bn of RMBS.

The settlement is said to end the bank’s largest outstanding RMBS litigation case, filed in 2013, while five other cases are continuing at various stages.

NJAG alleged that Credit Suisse had misled investors and engaged in fraud with respect to the offer and sale of RMBS, and claimed more than $3bn in damages.

The remaining cases are expected to be resolved in the coming six months, and cost a total of less than $100m, reported Reuters.

Furthermore, the bank failed to prevent money laundering by a Bulgarian cocaine trafficking gang, and several cases are pending in Bermuda, Singapore, and other countries.