Britain’s smaller banks jostle for business banking grants

Updated 10 December 2017
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Britain’s smaller banks jostle for business banking grants

LONDON: Britain’s smaller banks are lining up to apply for multimillion-pound grants the government hopes will help them compete in the corporate banking market.
For years the government has wanted to reduce the dominance of big banks in the small to medium-sized business (SME) banking sector. The four largest — HSBC, Barclays, RBS and Lloyds Banking Group — control more than 70 percent of business current accounts.
Royal Bank of Scotland was directed by the government and the European Commission to set up two funds worth a combined £775 million ($1.037 billion) following its £45.5 billion bailout during the financial crisis, seen as an unfair boost to RBS.
“A consequence of the 2008-9 crisis was that there was huge consolidation in financial services,” said Anne Boden, CEO of digital Starling Bank, which launched in 2014.
Applications for grants from the funds open next year. One, worth £350 million, will be used to encourage customers to switch providers, while the other £425 million fund will help challenger banks invest in their SME offerings.
The fiercest competition is expected to be over six grants making up the bulk of the second fund and focused on current or soon-to-be business current account providers.
At least 12 banks are likely to be eligible for just the first two pools of funding containing the six biggest grants.
Virgin Money and Starling Bank have set out plans to enter business banking in recent months while the CEO of app-based bank Monzo told Reuters it was now also tempted to move into the sector, having previously ruled this out.
Its chief commercial officer Hugh Chater recently told investors that its proposition, offering customers access to partners’ services, would provide a “compelling case” for funding.
Starling plans to have its service off the ground before it applies, allowing it to bid for one of the three biggest grants ranging from £60 million to £120 million and earmarked for firms already up and running. Unsuccessful firms will be considered for other pools of grants.
“We are very uniquely placed in this ... and confident of our ability to win,” said Starling’s Boden, while agreeing competition was heating up.
“I think that (the funds) are probably not enough. It could have been much more.”
Another digital player, Tandem, is set to acquire a banking license and business banking unit if its takeover of Harrods Bank is approved and plans to apply for all four pools of funds on offer.
“It (competition) is kicking off now,” said Ricky Knox, CEO of Tandem.
“It’s not reached a scale where there is serious acknowledgement of it, but we’re going to see a really interesting two to three years.”
Clydesdale and Yorkshire Bank (CYBG), TSB and Metro Bank are also in the running.
CYBG is currently piloting a business e-lending service and expanding in Birmingham and the West Midlands, moves that set it up to apply for the three biggest grants.
TSB also has plans to expand. Its CEO Paul Pester said in November it will be at the “front of the queue” for funding.
Santander fits the criteria, but its eligibility has drawn criticism given its parent, Spain’s Banco Santander, is one of the world’s biggest banks.
Santander UK CEO Nathan Bostock said the bank has the reputation and proven capability required to convince customers to switch.
“We will create some things we feel will help customers make that choice,” he added, referring to new products or services the bank will offer as part of its application.
Bostock noted that it has historically been very difficult to win market share from the big four banks. They have dominated the market since 1970, according to a 2016 government report, and suffered relatively little erosion of their market share despite numerous entrants to the market.
Switching rates remain low, at about 4 percent in 2014 according to the Competition and Markets Authority, although thousands of firms have been mistreated by major lenders in the past. Some accuse RBS of pushing them into bankruptcy to pick up assets on the cheap during and after the financial crisis.
The grant scheme was set up as an alternative way to boost competition after RBS found it was unable to sell its business banking unit Williams & Glyn.
The plan targets a transfer of 3 percent market share from RBS to challenger banks. The unit has around 220,000 SME customers.
— Reuters


Saudi Arabia seeks stable, not soaring, oil prices

Updated 22 September 2018
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Saudi Arabia seeks stable, not soaring, oil prices

  • Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
  • The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98

RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.

Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.