Bank of England takes deeper look at private equity sector The Bank of England said it is taking a deeper look at risks from the opaque private equity sector, and why valuations of Britain’s biggest banks are “subdued” compared with their international rivals. The central bank’s financial policy committee said in a record of its quarterly meeting in March: Finance for riskier corporates could be particularly vulnerable to a significant deterioration in investor risk sentiment. The private equity sector, which is closely related to private credit and leveraged lending, plays an important role in channelling finance to the UK real economy. The sector has grown rapidly over the past decade when interest rates have been relatively low. More recently, higher interest rates have made it more difficult for private equity funds to raise investment, contributing to downward pressure on asset valuations, and default rates on debt linked to private equity have increased. It is difficult to assess asset valuations and leverage in the sector, making it harder to assess risks to wider financial stability, the FPC said, adding that it will publish a further assessment of these risks in the June financial stability report. Meanwhile, Britain’s banking system is “well capitalised” and has “strong liquidity”, giving it the capacity to keep on lending even if economic and financial conditions were to worsen, the committee judged. The UK banking system has sufficiently large capital buffers and other resources to absorb potential losses or outflows of cash. Because of these resources, UK banks are strong enough to support households and businesses, even if economic and financial conditions are worse than expected. In the fourth quarter of last year, the major banks, such as NatWest, Lloyds, HSBC and Barclays had an overall core equity capital buffer of 14.7%, with an aggregate three-month moving average liquidity coverage ratio of 147%, the Bank said. However, the central bank will undertake a “desk based” stress test of lenders this year to check on their resilience to shocks. It said it would maintain the countercyclical capital buffer – a rainy day reserve – for major UK banks at its “neutral” level of 2%. Overall profitability of major banks is expected to remain robust but indicators of market value of their future profitability, such as average tangible price to book ratios, remain subdued, the FPC said. Closing summary Tom Hayes, the first banker to be convicted over the Libor interest rate scandal, has said he is “not a quitter” and vowed to continue his near-10-year battle to clear his name after losing an appeal. Hayes and another former banker, Carlo Palombo, had their convictions considered by the court of appeal in London in a three-day hearing. On Wednesday, it rejected their cases. Hayes was found guilty in 2015 of several charges of conspiracy to defraud by “rigging” the now-defunct London Interbank Offered Rate (Libor). He served five and a half years in a UK prison and was released in January 2021. Libor was a major interest rate benchmark which at its peak underpinned $300tn of financial contracts, including derivatives, bonds and loans. It has since been replaced by alternative interest rate benchmarks. Shares in Donald Trump’s social media business rose nearly 18% in early trading on Wall Street, after making its stock market debut yesterday when they closed 16% higher. The gains added $1.4bn to the firm’s market value, and took Trump’s personal stake to more than $5bn. Later, the shares were up 13%, valuing the firm at $9.3bn. Trump Media & Technology is trading under the ticker symbol “DJT”, using Trump’s initials. ‘You’ve got to be joking’: Mandelson dismisses prospect of UK rejoining EU Peter Mandelson has dismissed the prospect of an incoming Labour government taking Britain back into the EU, saying “you’ve got to be joking” that Brussels would want to renegotiate the UK’s membership. The Labour peer, a former EU trade commissioner and close adviser to Keir Starmer, said rejoining the 27-country bloc would require a referendum that UK voters had little desire for, after the Conservatives’ botched handling of Brexit. “I cannot see the British people running towards [a referendum] for love nor money after what we went through during the last one. I really do not think that people are going to run towards a repeat of that experience,” he told a British Chambers of Commerce (BCC) event at Heathrow airport on Wednesday. Secondhand clothing on track to take 10% of global fashion sales Secondhand clothing sales are on track to make up a tenth of the global fashion market next year, as the cost of living crisis and concerns over sustainability drives consumers towards “pre-loved” garments. Global sales of pre-owned clothes surged by 18% last year to $197bn (£156bn) and are forecast to reach $350bn in 2028, according to a report by GlobalData for resale specialist ThredUp. The landmark is expected to be reached a year later than predicted, as global growth remains slightly behind previous estimates. However, the US secondhand market grew seven times faster than overall fashion retail where sales were flat in 2023 from a year earlier. Shares in Trump Media rise again on second day Shares in Donald Trump’s social media business rose nearly 18% in early trading on Wall Street, after making its stock market debut yesterday when they closed 16% higher. The gains added $1.4bn to the firm’s market value, and took Trump’s personal stake to more than $5bn. Later, the shares were up 13%, valuing the firm at $9.3bn. Trump Media & Technology is trading under the ticker symbol “DJT”, using Trump’s initials. More than 6 million shares changed hands, making it one of the most actively traded companies in the US, according to Bloomberg. Trading was so volatile yesterday that it was briefly halted. At one point, shares in the group had jumped by more than 50%. Trump Media’s arrival on the market netted the former president a paper fortune of some $4.6bn on the first day of trading. After the deal closed on Monday, Bloomberg said that Trump had joined the ranks of the world’s 500 wealthiest people for the first time. And our full story on Tom Hayes: Tom Hayes, the first banker to be convicted over the Libor interest rate scandal, has said he is “not a quitter” and vowed to continue his near-10-year battle to clear his name after losing an appeal. Hayes and another former banker, Carlo Palombo, had their convictions considered by the court of appeal in London in a three-day hearing. On Wednesday, it rejected their cases. Hayes was found guilty in 2015 of several charges of conspiracy to defraud by “rigging” the now-defunct London Interbank Offered Rate (Libor). He served five and a half years in a UK prison and was released in January 2021. Libor was a major interest rate benchmark which at its peak underpinned $300tn of financial contracts, including derivatives, bonds and loans. It has since been replaced by alternative interest rate benchmarks. Palombo, another banker, was sentenced to four years in prison in 2019 for rigging Euribor – the euro version of Libor. Speaking outside the Royal Courts of Justice after the ruling, Hayes said the judges’ decision had been “a shock” and that he would try to appeal to the supreme court. The former UBS and Citigroup trader said his situation was “not consistent” with laws in France, Germany and the US. “We’re in a very, very sort of Alice in Wonderland situation here,” he said, adding: “I’m used to losing.” He also said: “I’m a fighter, not a quitter. We haven’t given up.” A spokesperson for the Serious Fraud Office said: “The court of appeal’s judgment is clear that these convictions for fraud are still as relevant today as 10 years ago. No one is above the law and the court has recognised that these convictions stand firm.” Here is our full story on the UK packaging firm DS Smith: An international bidding war is brewing for the UK packaging company DS Smith after a US-based paper producer put forward a £5.7bn takeover proposal, gatecrashing a deal it had agreed with the British rival Mondi. DS Smith confirmed it was now in talks with International Paper, one of the largest paper and pulp companies in the world, over an all-stock offer, which would trump the £5.14bn deal put forward by Mondi earlier this month. Sir Martin Sorrell"s ad agency posts lower sales and warns of further falls Sir Martin Sorrell’s ad agency has reported a drop in annual revenue and warned of a further decline this year, sending its shares down 15.5%. S4 Capital, founded by Sorrell, the executive chairman after he left the UK ad giant WPP in 2018, posted a 4.5% decline in like-for-like revenues to £873m for 2023 and said it expects clients to “remain cautious” in the coming months. It made a loss of £160.5m last year. The firm said sales will continue to decline on a like-for-like basis this year, and explained that it had seen “longer sales cycles, particularly for larger transformation projects” affecting some technology clients, along with a reduction in smaller projects and with local and regional clients. The company has been hit harder than rivals – WPP estimates sales growth of as much as 1% this year and France’s Publicis Groupe as much as 5%. Sorrell appointed Jean-Benoit Berty, a former senior partner at the consultancy EY, as its new chief operating officer as part of a board reshuffle. Sorrell said: After our first four strong net revenue growth years, we had a difficult 2023 reflecting challenging global macroeconomic conditions, fears of recession and high interest rates. Berty’s “extensive management consulting experience will be of great value in focusing on the opportunities and challenges we face”, he added. Morrisons sales growth hits three-year high Morrisons has promised it is “embracing the start of our next chapter” with a “real sense of optimism and renewal” as sales growth hit the highest level in three years. The company said sales rose by 4.6% in the three months to 28 January, up from 3.3% in the prior month and a bounce back from falling sales in 2022. However, the figures reflect a period of high inflation when food prices were rising by more than 6%, year on year, according to the British Retail Consortium. Rami Baitiéh, boss of the UK’s fifth largest supermarket which has suffered from managing high levels of debt since a takeover by US private equity fund Clayton Dubilier & Rice in late 2021, said customer complaints were down almost 60% in the past five months as the company had improved availability and innovation on products and cut waste. The company has also begun matching key product prices with discounters Aldi and Lidl since February and is also stepping up deals with franchise partners to open three convenience stores a week. He said: In January I outlined our plan to reinvigorate, refresh and strengthen Morrisons as we started our next chapter. Those plans are now in full swing. Across the business we have identified many areas where we can raise our game and make small improvements which collectively will result in a significantly enhanced shopping experience for our customers. Tom Hayes loses appeal against rate-rigging conviction Tom Hayes, the first trader jailed worldwide for interest rate rigging, has lost his appeal against his conviction in a London court. Hayes, a former star UBS and Citigroup trader, was convicted in 2015 of conspiracy to defraud by manipulating Libor, a benchmark rate once used to price trillions of pounds worth of financial products globally. Prosecutors said Hayes and other traders were acting illegally by taking their own or their employer’s commercial interests into account when they made submissions on the London interbank offered rate (Libor). Hayes was released from prison in 2021 after serving what he called a “traumatic” five and a half years in custody, half his 11-year sentence. His appeal against his conviction was heard alongside that of Carlo Palombo, a former Barclays trader convicted in 2019 of skewing Libor’s euro equivalent, Euribor. Their cases were referred to the Court of Appeal in London after a landmark US court decision in 2022, in which two former Deutsche Bank traders’ convictions for Libor rigging were overturned. Hayes and Palombo’s appeals were dismissed, senior judges announced today after a hearing which began last week. The decision can be appealed to the Supreme Court. During his trial Hayes was described as the ringleader in a vast conspiracy to fix the Libor rate between 2006 and 2010. A gifted mathematician who was diagnosed with mild Asperger’s syndrome shortly before his trial, Hayes was charged by both UK and US prosecutors, but a US court dismissed the charges in October 2022. He earned millions of pounds for his work as a trader, but claimed during his trial that he was taking part in an “industry-wide” practice. He was convicted of eight counts of conspiracy to defraud. When he was released from prison, Hayes said: “Today I begin the process of rebuilding my life and my shattered relationship with my son, Joshua.” German economy will barely grow in 2024, say institutes The German economy will barely grow this year, according to the country’s leading economic institutes. The institutes slashed their forecast for GDP growth to 0.1% this year, from 1.3%, as high interest rates, weak global demand and political uncertainty dent hopes for a stronger recovery. For next year, they are expecting growth of 1.4% rather than 1.5%. Stefan Kooths, head of economic research at the Kiel Institute for the World Economy, said: Although a recovery is likely to set in from the spring, the overall momentum will not be too strong. The institutes’ report said economic output is barely higher than before the pandemic, as productivity has stalled. There have recently been more headwinds than tailwinds in the domestic and foreign economies. As inflation is expected to ease to 2.3% in 2024 and 1.8% in 2025, private consumption is set to become the most important driver for the economy, followed by stronger exports. Unemployment is forecast to rise only slightly and fall again starting in the spring. UK homeowners and businesses resilient to high interest rates – BOE The Bank of England also said that mortgage holders and businesses are generally coping well with high interest rates, and problem debt levels are well below those seen after the 2008-9 financial crisis. Its financial policy committee said in its latest quarterly report: UK households and businesses have so far been resilient to the impact of higher interest rates. UK households are still facing pressures from the increased cost of living and higher interest rates. But we now expect a smaller increase in the share of households spending a high proportion of their income on mortgage payments over the next two years than we did in December. The overall share of households who are behind in paying their mortgages has risen slightly this quarter but remains low by historical standards. We expect most UK businesses to continue to be resilient to higher interest rates and weak growth. But some are likely to struggle with higher borrowing costs – in particular, those firms in parts of the economy most exposed to a slower growth, or with a large amount of debt. Bank of England takes deeper look at private equity sector The Bank of England said it is taking a deeper look at risks from the opaque private equity sector, and why valuations of Britain’s biggest banks are “subdued” compared with their international rivals. The central bank’s financial policy committee said in a record of its quarterly meeting in March: Finance for riskier corporates could be particularly vulnerable to a significant deterioration in investor risk sentiment. The private equity sector, which is closely related to private credit and leveraged lending, plays an important role in channelling finance to the UK real economy. The sector has grown rapidly over the past decade when interest rates have been relatively low. More recently, higher interest rates have made it more difficult for private equity funds to raise investment, contributing to downward pressure on asset valuations, and default rates on debt linked to private equity have increased. It is difficult to assess asset valuations and leverage in the sector, making it harder to assess risks to wider financial stability, the FPC said, adding that it will publish a further assessment of these risks in the June financial stability report. Meanwhile, Britain’s banking system is “well capitalised” and has “strong liquidity”, giving it the capacity to keep on lending even if economic and financial conditions were to worsen, the committee judged. The UK banking system has sufficiently large capital buffers and other resources to absorb potential losses or outflows of cash. Because of these resources, UK banks are strong enough to support households and businesses, even if economic and financial conditions are worse than expected. In the fourth quarter of last year, the major banks, such as NatWest, Lloyds, HSBC and Barclays had an overall core equity capital buffer of 14.7%, with an aggregate three-month moving average liquidity coverage ratio of 147%, the Bank said. However, the central bank will undertake a “desk based” stress test of lenders this year to check on their resilience to shocks. It said it would maintain the countercyclical capital buffer – a rainy day reserve – for major UK banks at its “neutral” level of 2%. Overall profitability of major banks is expected to remain robust but indicators of market value of their future profitability, such as average tangible price to book ratios, remain subdued, the FPC said. FCA finds concerns over insurers’ valuation of stolen cars Britain’s financial regulator has identified shortcomings in how some motor insurance firms are valuing written-off or stolen vehicles. A review by the Financial Conduct Authority (FCA) has found evidence that suggests some firms are offering their customers less than their written-off or stolen vehicle is worth and, in some cases, are only increasing that offer when a customer complains. This comes despite the FCA’s previous warnings that insurers must not undervalue cars or other insured items when settling claims. The regulator is talking to the firms included in its review to ensure they make improvements to address its findings. Sheldon Mills, executive director for consumers and competition at the FCA, said: Having your vehicle written off or stolen can be intensely stressful and we expect firms to offer the right support to help their customers. We expect all motor insurers to take note of our findings and we are engaging directly with those that have issues that need to be addressed. Insurers must handle claims promptly and fairly under FCA rules. Customers who think their claim may have been undervalued can complain to their insurer and then to the Financial Ombudsman Service if their complaint is not resolved. Here is some reaction to our main story: Asda, Asos and Boohoo must avoid making misleading claims about the green credentials of their clothes in future, after a regulatory crackdown on “greenwashing” in the fashion sector. The three retailers will have to file regular reports to the UK’s Competition and Markets Authority (CMA) after an investigation started in 2022 examined concerns that the companies were using vague claims to bolster their environmental credentials. The global fashion industry is a major polluter and source of carbon emissions but consumers in wealthy countries are increasingly interested in shifting spending towards products that cause less environmental harm. The UK competition regulator is concerned that shoppers are being misled by companies, who risk breaching consumer law in their efforts to appeal to green consumers. Christopher Eberhardt, counsel at global law firm Ashurst, said: This is the first example of enforcement action against misleading green claims by the CMA under consumer law. It therefore reminds all businesses of the importance of ensuring that their green or sustainability claims are accurate and not misleading. The undertakings offered by the retailers largely build on the existing principles under the CMA’s Green Claims Code. They also include provisions requiring the retailers to ensure their supply chains meet requisite standards, which is a challenge many businesses face when making and verifying claims about their products. The CMA has also reminded all businesses that, once its new consumer enforcement powers enter into force later this year, they could face substantial fines for misleading green claims. Here are some photos of Chinese president Xi Jinping’s meeting with the bosses of top US companies, posted on X by Hua Chunying, assistant minister of foreign affairs. Sean Stein, chair of the American Chamber of Commerce in China, told the Financial Times: The [US] companies that are here to serve the China market or to sell into China, I think they’re a little more positive than they were, say, a year out. There are still deep structural issues that are holding the economy back, but the cyclical part seems to have improved, and so where they are in the business cycle is in a better place. Study of UK’s top bamboo loo rolls show some are made from other woods In the bathrooms of the ecologically conscious, bamboo toilet paper is the new bottom line – a supposedly green alternative to the bog-standard pulp-based loo roll that requires the chopping down of 1m trees a year, just to be flushed down the pan. But findings from consumer watchdog Which? will wipe away that smug feeling: samples of three out of the five of the UK’s top bamboo brands were actually made from other woods, some of them heavily implicated in deforestation. In the worst case, only 2.7% of the fibre in the loo paper came from bamboo. Other woods found in the products included acacia, a species associated with deforestation in Indonesia, and eucalyptus, another fast-growing tropical hardwood species. Which? commissioned a “loodunnit?” analysis of the top five eco loo roll brands claiming to be made from bamboo or 100% bamboo. Bumboo contained only 2.7% bamboo-like grass fibres, while Naked Sprout contained about 4%, and Bazoo toilet paper was about 26% bamboo. The findings may indicate more widespread issues: the three brands receiving a smack on the bottom from Which? used bamboo from China, and are all certified by the Forest Stewardship Council, a body that offers certification to responsibly managed forests and products made from them. FSC told the Guardian it would conduct an investigation. H&M beats forecasts, spring collections "well received" Swedish fashion giant H&M beat profit expectations, as its new boss Daniel Erver said its spring collections were well received and sales showed signs of recovery. Shares in the world’s second-largest listed fashion retailer jumped nearly 13% after it posted an operating profit of 2.08bn krona (£160m) in the first quarter, up from 725m krona a year ago and above the 1.43bn krona forecast by analysts. Sales dropped 2% in the first quarter, less than analysts expected, while sales at the start of the second quarter rose by 2%, reflecting stronger demand for H&M clothing and accessories. Erver, who has been in the job for two months, said: The quarter’s sales gradually improved during February with well-received spring collections, which is a positive sign that we are on the right track. Our top priority is to strengthen sales. The retailer, known for £24.99 jeans and £19.99 dresses, has moved into more expensive clothing, selling leather trousers for £229.99 and, under its Cos brand, coats for £240. It is competing with the Singapore-based online fast-fashion retailer Shein at the lower end of the market, and its bigger rival, Spain’s Zara. Riksbank: "Policy rate may well be cut in May or June" Sweden’s Riksbank, the oldest central bank in the world, kept its benchmark interest rate at 4% today, but said a cut could come as soon as May. The central bank said: The executive board wants further confirmation that inflation will stabilise close to the target. If the inflation prospects remain favourable, the policy rate may well be cut in May or June. The Riksbank would be the second central bank in the world to lower borrowing costs, after the Swiss National Bank cut its key rate to 1.5% from 1.75% in a surprise move last week. Markets are expecting the US Federal Reserve and the European Central bank to wait until at least June. Turning to the Bank of England, City traders are pricing in three quarter-point interest rate cuts this year, with a possible first downward shift from as early as May or June. Money markets give a 20% chance of a cut in May, before the Fed or the ECB. DS Smith shares rise after new takeover offer Shares in the British packaging group DS Smith rose after it announced that it is in discussions with a New York-listed paper producer over a £5.7bn takeover offer. London-based DS Smith confirmed that it is in talks with International Paper, the largest paper and pulp company in the world, over an all-stock offer from the US company, which gatecrashed an agreed £5.1bn deal between DS Smith and Mondi, another London-listed group. DS Smith shares rose 7.4% to 386.50p today. Under the terms of the proposal, DS Smith shareholders would receive 0.1285 shares in International Paper for each share they own in DS Smith. If the proposed deal goes through, DS Smith shareholders will own just over a third (33.8%) of the combined company. The proposal values each DS Smith share at 415p, based on International Paper’s closing price of $40.85 on Monday, the UK company said. The offer from International Paper, based in Memphis, Tennessee, represents a premium of 48% to DS Smith’s closing price on 7 February, the day before Mondi, based in Weybridge, pounced on its smaller rival with a preliminary bid. DS Smith said: The board acknowledges the strategic merits and potential for value creation through a combination with International Paper. Accordingly, the board is progressing its discussions with International Paper regarding the proposal. The CMA has also issued an open letter to the sector, urging fashion retailers to review their claims and practices in light of the changes, which set a benchmark for the industry. UK watchdog secures changes from Asos, Boohoo, Asda on green claims Millions of consumers can expect to see accurate and clear green claims when shopping for fashion items with Asos, Boohoo and George at Asda, Britain’s competition watchdog said. The Competition and Markets Authority (CMA) said the companies had signed formal agreements to change the way they display, describe, and promote their green credentials. The CMA launched an investigation into ASOS, Boohoo and George at Asda in July 2022, having identified concerns of possible greenwashing during an initial review of the fashion sector. Sarah Cardell, the CMA’s chief executive, said: Following our action, the millions of people who shop with these well-known businesses can now have confidence in the green claims they see. This also marks a turning point for the industry. The commitments set a benchmark for how fashion retailers should be marketing their products, and we expect the sector as a whole – from high street to designer brands – to take note and review their own practices. The undertakings include: Green claims: ASOS, Boohoo and George at Asda must ensure all green claims are accurate and not misleading, in plain language Statements regarding fabrics: Statements made about materials in green ranges must be specific and clear, such as ‘organic’ or ‘recycled’, rather than ambiguous – using terms like ‘eco’, ‘responsible’, or ‘sustainable’. The percentage of recycled or organic fibres must be clearly displayed and easy for customers to see. Criteria for green ranges: The criteria used to decide which products are included in environmental collections – such as ASOS’s former ‘Responsible edit’, Boohoo’s ‘Ready for the Future’ range, and George at Asda’s ‘George for Good’, and any further ranges – must be clearly set out and detail any minimum requirements. Use of imagery: The firms must not use ‘natural’ imagery – such as green leaves – logos, or icons in a way that suggests a product is more environmentally friendly than it actually is. Product filters: Search filters must be accurate, only showing items that meet the filter requirements – for example, if a consumer uses a filter to show ‘recycled’ trousers, only trousers made from mainly recycled materials should be shown. Environmental targets: Any claims made to consumers about environmental targets must be supported by a clear and verifiable strategy, and customers must be able to access more details about it. Such information should include what the target is aiming to achieve, the date by which it is expected to be met, and how the company in question will seek to achieve that target. Accreditation schemes: Statements made by the companies about accreditation schemes and standards must not be misleading. For example, statements must make clear whether an accreditation applies to particular products or to the firm’s wider practices. Introduction: China’s president Xi meets US bosses to mend ties Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy. China’s president Xi Jinping has met a group of US chief executives in Beijing amid efforts to mend ties frayed by geopolitical and trade tensions between the two countries. The business bosses include private equity firm Blackstone’s Stephen Schwarzman and the semiconductor company Qualcomm’s Cristiano Amon. China is keen to show it welcomes foreign businesses, restore confidence in the economy amid a shaky recovery and keep relations with the US stable. State broadcaster CCTV named a number of executives present at the meeting and said Xi took a group photo with them before the event. Other attendees include Raj Subramaniam, chief executive of the transport firm FedEx; Evan Greenberg, CEO of the insurer Chubb; Stephen Orlins, president of the National Committee on US-China Relations; Craig Allen, president of the US-China Business Council; and former Bank of England governor Mark Carney, now chairman of Bloomberg, according to CCTV. Japan’s finance minister has issued its strongest warning to date on the weaker yen, as the currency sank to a 34-year low against the dollar, saying authorities could take “decisive steps” – language previously used before intervention. Shunichi Suzuki previously used the phrase “decisive steps’ in the autumn of 2022 when Japan last intervened in the market to stem the slide in its currency. The yen traded at 151.97 per dollar, down 0.2% and weaker than the 151.94 level when Japanese authorities stepped in during October 2022 to buy the currency. The Bank of Japan governor, Kazuo Ueda, said it was important to support the economy with easy policy for the time being, a week after the central bank moved away from negative interest rates, which it had for eight years. He told parliament: Japan’s medium to long-term inflation expectations, and trend inflation, are still in the process of heading towards 2%. He said the likelihood of achieving the BOJ’s 2% inflation target was high as growth in average real wages is likely to turn positive soon. The Agenda 8.30am GMT: Sweden’s Riksbank interest rate decision 10.30am GMT: Bank of England financial policy committee releases its March summary and report on risks to financial stability 11am GMT: US MBA Mortgage applications for week of 22 March