Fear and frustration: Europe’s wealthy keep wallets closed

The island of Chrysi, south of Crete. Travel is one of the sectors affected as coronavirus cases rise, with spending data showing that fear of infection is deterring many wealthier consumers from splashing out. (AFP)
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Updated 12 September 2020

Fear and frustration: Europe’s wealthy keep wallets closed

  • High-income consumers are spending less on travel, retail, luxury goods and leisure in general
  • We thought about going to Greece — in a way it’s so appealing when you know there aren’t many tourists — but honestly, I’d feel pretty stupid if I died

LISBON: By this time of year, Ilene Steele, 63, would usually have several trips behind her: One to visit family in the US, a holiday in Italy, and a few day excursions in London, where she lives with her retired therapist husband Mike.

She’d be meeting friends for drinks and dinners, and enjoying manicures and pedicures with her daughter.
But not this year, even after lockdowns to counter the COVID-19 pandemic eased.
“We hardly go out, really,” the retired jeweller said. “We haven’t travelled. We thought about going to Greece — in a way it’s so appealing when you know there aren’t many tourists — but honestly, I’d feel pretty stupid if I died.”
As coronavirus cases rise again across Europe, spending data shows that fear of infection is deterring many wealthier consumers from splashing out. That spells trouble for retailers, luxury goods and leisure firms desperate to make up lost ground.
Between the risk of contracting the virus and the hassle of safety measures — from needing to put on paper socks before trying on trainers, to plastic screens dividing customers at the hairdresser — the fun of going out is lost, Steele feels.
“It’s like being at an operating table,” she said of images that she’d seen of restaurants with barriers between diners. “I just wouldn’t enjoy that.”
Consumer transaction studies in countries including Britain, Denmark, France and Sweden show a pattern also seen in the US: Even as shops reopened, high-income consumers kept their wallets zipped up.
British consumers earning £40,000 ($51,250) or more after tax accounted for about 35 percent of spending in 2019, but 45 percent of the decline in the second quarter of 2020, a study of card transaction data by London Business School professor Paolo Surico and others showed.
“High-income groups spend in areas with a so-called ‘multiplier effect’ — non-essential services which employ lower-income groups,” Surico explained. “We want to engineer a situation where the young and the poor can save a bit more, and the older spend. But it’s happening the wrong way around.”

HIGHLIGHTS

● Wealthier Europeans hold off discretionary spending.

● Cash set aside on health fears even without lockdowns.

● Retail sector faces more pain as furloughs wind down.

A comparative study by economist Asger Lau Andersen and others analysed spending from March to May by 860,000 consumers in Denmark, which imposed heavy coronavirus restrictions, and Sweden, which did not, but saw more infections.The data showed spending in Denmark falling by just 4 percent more than in Sweden, and the elderly in Sweden actually cutting back more than the same age group in Denmark.
“Our interpretation is that the higher COVID incidence in Sweden made this high-risk group more cautious, despite stronger formal restrictions in Denmark,” Andersen said.
The resurgence of the virus, coupled with the winding down of furlough schemes in some countries, could further dampen demand on the lower-income side of the spectrum, particularly in sectors such as grocery which until now have proved resilient.
Data scraped by analytics firm StyleSage from online clothing companies’ websites including Zara, Asos, Mango, Net-A-Porter and New Look in August showed 6-10 percent more products on discount than last year at 2-4 percent lower prices, as retailers pre-empt a fall in purchasing power.
Surico’s study of the UK, where a furlough scheme is being gradually phased out, showed those receiving government benefits returned to 2019 spending levels in June, while those not on government support remained 30 percent below last year’s levels.
Still, card transaction data from analytics firm Fable Data shows UK retail sales rose in August, recovering to just above 2019 levels by the end of the month.
Consumers shifted spending from entertainment, leisure and transport towards cars, car maintenance, home improvements and sporting goods, it showed.
Grocery retailers are for now still benefiting from people eating in, rather than out. Sales of fresh fruit and vegetables in Germany at Aldi, Europe’s second largest grocery retailer, continue to be higher than usual, a spokeswoman said.
But in Portugal, where a steady rise in cases since June has led to partial lockdowns and a plunge in tourism threatening thousands of jobs, August figures already point to a contraction in grocery sales, according to Portuguese grocery network APED. “Consumption doesn’t only go down because people are scared of going to shops,” head of APED Goncalo Lobo Xavier said. “It’s also their finances they are worried about.”


HSBC, StanChart shares fall to 22-year lows

Updated 22 September 2020

HSBC, StanChart shares fall to 22-year lows

  • Falls follow reports on movements of allegedly illicit funds; shares fall amid wider selloff in stocks

LONDON: HSBC’s shares in Hong Kong and Standard Chartered’s in London fell on Monday to their lowest since at least 1998 after media reports that they and other banks, including Barclays and Deutsche Bank, moved large sums of allegedly illicit funds over nearly two decades despite red flags about the origins of the money.

BuzzFeed and other media articles were based on leaked suspicious activity reports (SARs) filed by banks and other financial firms with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCen).

HSBC shares in London fell as much as 5 percent to 288 pence, their lowest intraday level since 2009, after the lender’s Hong Kong shares earlier touched a 25-year low. The stock has now nearly halved since the start of the year.

StanChart dropped as much as 4.6 percent in London to its lowest since 1998, against the backdrop of a broader sell-off in the market with the STOXX European banks index down 4.8 percent.

More than 2,100 SARs, which are in themselves not necessarily proof of wrongdoing, were obtained by BuzzFeed News and shared with the International Consortium of Investigative Journalists (ICIJ) and other media organizations.

In a statement to Reuters on Sunday, HSBC said “all of the information provided by the ICIJ is historical.” The bank said that as of 2012 it had embarked on a “multi-year journey to overhaul its ability to combat financial crime.”

StanChart said in a statement it took its “responsibility to fight financial crime extremely seriously and have invested substantially in our compliance programs.”

Barclays said it believes it has complied with “all its legal and regulatory obligations, including in relation to US sanctions.”

The most number of SARs in the cache related to Deutsche Bank, whose shares fell 5.2 percent on Monday. In a statement on Sunday, Deutsche Bank said the ICIJ had “reported on a number of historic issues.”

“We have devoted significant resources to strengthening our controls and we are very focused on meeting our responsibilities and obligations,” a spokesperson for the bank said.

London-headquartered HSBC and StanChart, among other global banks, have paid billions of dollars in fines in recent years for violating US sanctions on Iran and anti-money laundering rules.

The files contained information about more than $2 trillion worth of transactions between 1999 and 2017, which were flagged by internal compliance departments of financial institutions as suspicious. 

The ICIJ reported the leaked documents were a tiny fraction of the reports filed with FinCEN. HSBC and StanChart were among the five banks that appeared most often in the documents, the ICIJ reported.

“It confirms what we already knew — that there are huge numbers of SARs being filed with relatively low numbers of cases brought through to prosecution,” said Etelka Bogardi, a Hong Kong-based financial services regulatory partner at law firm Norton Rose Fulbright.