Vince Cable Attacks Bank Capital Ruling

Banks Warned Over Capital Shortfall

Updated: 12:44pm UK, Wednesday 27 March 2013

Britain's banks have a capital shortfall of £25bn because they have under-estimated the potential losses and fines they face over the next three years.

The Bank of England's Financial Policy Committee (FPC) said regulators will order institutions to fill the capital hole by the end of the year - with further increases required in the future.

But the demand was met with criticism from Vince Cable, who told Sky's City Editor Mark Kleinman that boosting banks' balance sheets in this way would be counterproductive to economic recovery.

Bank governor, Sir Mervyn King, later argued that: "Far from reducing lending, today's recommendations will support lending and promote growth.

"A weak banking system does not expand lending. The better capitalised banks are the ones expanding lending and it is the weaker capitalised banks that are contracting lending."

The FPC warned that over the next three years banks could suffer around £30bn in bad debts on exposure to property and eurozone economies.

They could also be hit by a further £10bn in so-called "conduct costs" such as mis-selling claims and around £12bn on a more prudent approach to risk.

"Taken together, the effect of these three adjustments would be equivalent to around a £50bn reduction in the regulatory capital of the major UK banks and building societies," the FPC said in a statement.

Shares in Lloyds and Royal Bank of Scotland rose after the announcement, as the shortfall figure was not as bad as feared in the City.

It comes after a warning in November that the capital hole needed as a cushion against future crises could be as high as £60bn.

Some of Britain's biggest banks have already taken action to boost their balance sheets after discussions with the Financial Services Authority.

But the FPC said that some lenders - which it did not name - still did not have the necessary capital to meet the requirements.

These banks and building societies will have to meet the gap by raising new capital or restructuring their balance sheets.

This must be done in a way that "does not hinder lending to the economy", the FPC stressed, with many small businesses across the UK already struggling to get loans.

RBS later said in a statement that its capital position was strong.

The Treasury also made it clear that the taxpayer will not stump up any more cash for taxpayer-backed lenders RBS and Lloyds.

Today's statement is seen as a pivotal one for the FPC, whose job it is to spot and prevent another financial crisis.

It is also the pillar of the new regulatory regime introduced by the coalition, which comes into force on April 1.

As part of the overhaul, the incoming Prudential Regulation Authority will ensure banks and building societies have capital ratios of at least 7%.

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Cyprus: British Expats Facing Cash 'Nightmare'

By Tom Parmenter, in Limassol

Some British expats in Cyprus are facing a "financial nightmare" after the country's unprecedented EU bailout.

After nearly four decades of hard work in the UK Terry and Hazel Rose thought moving to Pyrgos in southern Cyprus would give them the perfect retirement.

They brought everything with them from Maidenhead in Berkshire and hold many assets including bank deposits over the 100,000 euros (£85,000) threshold.

They are likely to be subject to a levy between 30% and 40%.

Terry, who spent most of his career working for the British Army, told Sky News: "It's disgusting, it is my money, fair enough if you want to tax money people have earned in Cyprus but this is mine.

"It is a nightmare and yes I'm very angry."

With every bank still closed they have emailed their bank manager but have heard nothing back so simply do not know if a big chunk of their life savings will vanish.

Hazel added: "We love Cyprus, don't get me wrong, but this is the final straw. Sometimes I wish we'd never moved out here."

Their house is now in negative equity and moving back to the UK is not financially viable.

At the 'Taste of Britain' cafe and deli in Limassol almost all expat customers are concerned about what may lie ahead.

Banks are due to open again on Thursday

Owner Ann Bruce who moved here from Lancashire nine years ago told Sky News: "A lot of people come in here with very sad stories.

"It is frightening that the banks, an official organisation, that for years we have trusted, now you can't trust them any more."

The bulk of the British expats live in the resorts that stretch along the coastline of Cyprus but so do many wealthy Russians.

Amongst the Brits there are deep suspicions that some Russians were tipped off about the crisis and moved large amounts of money out of Cyprus.

It is hard for people to prove but British business owners told Sky News they have consistently heard anecdotal evidence that Russians were withdrawing massive amounts of money in the days before the crisis began.

British expats, though, can only concentrate on their own affairs.

Chris Parry, originally from Lincolnshire, now works as a financial advisor for 3D Global around Limassol and has been busy organising forums where expats can turn up and ask questions about what the financial crisis may mean for them.

He told Sky News: "In the great words of Dad's Army we're saying 'Don't panic' but most of my clients are naturally very worried.

"Most people who move out here are pensioners and the money they bring out here that's it, they can't add to it."

Banks in Cyprus are now due to open on Thursday and extra security staff are being drafted in to help control the crowds of people that are likely to turn up demanding money and information.

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Cyber Threat: Spies And Big Firms Join Forces

By Tim Marshall, Foreign Affairs Editor

The UK has seen an unprecedented wave of cyber attacks against its leading companies, government ministries and telecommunications sector, according to a senior Government official.

In response, the Government is setting up an operations room in London staffed by computer security experts drawn from the intelligence services and private sector.

The Fusion Cell, as it will be known, will include a giant screen showing where in the UK cyber attacks by foreign states and criminals are centred.

The information will be shared among up to 160 top British companies under the Cyber Security Information Sharing Partnership (CISP), which is being launched by Cabinet Office Minister Francis Maude.

He said: "We know that cyber attacks are happening on an industrial scale.

"Businesses are by far the biggest victims of cyber crime in terms of industrial espionage and intellectual property theft, with losses to the UK economy running into the billions of pounds annually."

The Fusion Cell will comprise about 10 officers from MI5, GCHQ and MI6, as well as men and women on secondment from some of Britain's biggest companies.

Officers from MI6 are part of the Fusion Cell team

The Government source said that as the scale of cyber threats grew "we could see that no single organisation was big enough to oversee cyberspace".

The source added: "So the decision was taken to bring together the intelligence agencies and commercial sectors.

"We are still seeing the volume of attacks increasing and we expect that to continue. The Fusion Cell will allow us to geographically plot where the attacks are going and which sectors are being attacked."

In a pilot scheme codenamed Protect Auburn, 80 companies signed up for the scheme and began to share intelligence.

Because an attack on a commercial company can impact on its share price, the Government will only pass on information from one company to the others with the explicit permission of the company involved.

The source said the pilot scheme "showed trust growing between those involved and the volume of information shared growing".

Civilians from the private sector will be security vetted to "mid-level", but the intelligence officers present will have higher clearance levels.

Many of the companies involved are household names. They will have access to a highly encrypted web portal described as "like a secure Facebook".

It will highlight types of attack and the "signatures" of those behind it.

The launch of CISP is part of a rolling Government programme of cyber defence with funding of £650m over five years.

In parallel, MI5, the Security Service, is involved in an "outreach" programme in which it advises some of Britain's FTSE 100 companies on cyber security through the Centre for Protection of National Infrastructure.

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Holiday Bookings Up As Wintry Weather Lingers

Britons have been rushing to book sunshine holidays in the wake of record summer rainfall and prolonged wintry weather, according to Europe's biggest tour operator.

TUI Travel told investors summer bookings were up by 9% in the UK over the six months to March 31 compared to the same period last year.

TUI, whose brands include Thomson, First Choice and Gulliver Travel, said it continued to see "very strong" trading despite a 4% increase in its average summer prices at a time of constrained consumer spending.

It said demand was driven by its online business and direct distribution - with online accounting for 40% of its sales in the UK.

The company said: "This is against a backdrop of uncertainty in the eurozone, highlighting that demand for the annual holiday remains resilient against a weak macro-economic environment."

TUI's strong trading comes amid a turnaround battle at rival Thomas Cook, led by new chief executive Harriet Green, which is resulting in 2,500 job losses among its 15,500-strong UK workforce.

Just under 200 of its high street travel agencies are to close as part of the reforms, but it too has seen recent growth in bookings.

Shares in TUI Travel rose 6% on opening after the company said it expected 7%-10% growth in underlying annual operating profit.

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Lloyd's Of London Back In Profit Despite Sandy

Lloyd's Of London has bounced back into profit in 2012 after claims fell as a result of fewer natural disasters.

The world's oldest insurance market said pre-tax profit increased to £2.77bn from a loss of £516m the year before.

The strong figures come despite Superstorm Sandy, which ripped through the Caribbean and North America in October 2012.

Lloyd's said the resulting claim of $2.2bn (£1.4bn) was one of the largest in its 325-year history.

But overall, last year was easier on the insurance industry than 2011, which was the most expensive on record for natural disasters.

Claims at Lloyd's fell to £10.1bn, down from £12.9bn the year before as a result of catastrophes including severe earthquakes in Japan and New Zealand.

Its chief executive Richard Ward said the results were strong despite Sandy, which he described as "one of the costliest natural catastrophes in history."

Its investment return also increased in 2012 - to £1.3bn from £995m in 2011.

Lloyd's began as a group of shipping merchants who met in a London coffee house, and now represents the combined results of around 80 insurance and reinsurance companies.

Listed companies which operate at Lloyd's include Catlin, Hiscox and Amlin.

Over 40% of its business is done in the US and Canada, with the UK making up 18%.

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Green Energy Moves Help Push Up Fuel Bills

By Poppy Trowbridge, Business and Economics Correspondent

Energy prices will continue to rise for households across the UK, according to a new Government report.

The average household bill could rise to £1,516 from the current £1,319 by 2030, the Department for Energy and Climate Change (DECC) said.

Certain Government programmes, such as fuel rebates, may reduce that figure by around £40 per household.

But environmental policies to develop greener and more diverse sources of energy are also contributing to rising bills.

The cost of such projects already make up 9% of an average duel-fuel household bill - equal to £112.

Energy Secretary Ed Davey said: "Global gas price hikes are squeezing households. They are beyond any Government's control and, by all serious predictions, are likely to continue rising."

He told Sky News: "A small part of the rises are coming from our government costs, but they are needed, to make sure we are more secure.

The freezing weather has raised concerns about gas supplies

"We need clean energy so that we tackle climate change and have greater security, and we are not so dependent on imports."

The UK relies heavily on imported shipments of gas from continental Europe and Gulf states like Qatar.

The recent cold spell has put extra strain on supplies, leaving Britain vulnerable to price spikes on the international market.

The report showed 85% of the rise in household bills between 2010 and 2012 was from wholesale energy costs and network costs.

It also claimed that Government policies on home insulation and more efficient boilers have already helped bring down bills.

They are an average of 5% or £64 lower now and will be 11% or £166 lower by 2020, according to the research.

Nearly half of the average dual fuel bill - £598 - goes on fossil fuels, and the second largest proportion is network costs, transport and distribution.

The report also highlights that household energy consumption has been on a downward trend since 2005, due in part to the efficiency measures already adopted.

James Lloyd, director of the Strategic Society Centre, said: "It would really have been much better if the Government had been making some of these tough choices back when the economy was doing much better, and households and businesses had more money in their pockets."

Steve Radley, policy director at EEF, the manufacturers' organisation, said: "This is a wake-up call. Policies are already adding 30% to business electricity prices, and this will rise to 50% by 2020 and 70% by 2030.

"Measures to shield the most energy-intensive industries from a portion of the costs will make a difference but, unless we get a grip on spiralling policy costs, steeply rising electricity prices for the rest of the sector risk making the UK an increasingly unattractive location for industrial investment and undermining efforts to rebalance the economy."

Caroline Flint, shadow energy and climate change secretary, said: "The Government's underhand attempt to mask the real impact of its policies on families' energy bills is shameful.

"At a time when hard-pressed families and pensioners are seeing their incomes squeezed, only this out-of-touch Government could expect people to fork out thousands of pounds on new TVs, fridge freezers and washing machines.

"Instead of cooking the books to trick people into thinking their energy bills will be lower, ministers should get behind Labour's plans to overhaul the energy market and deliver fair prices for the public."

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Apple Sued In China Over Siri Patent Claims

Apple is being taken to court in China for alleged copyright infringement on its Siri feature.

Shanghai's Zhizhen Network Technology Co claims Apple infringed its patent for the voice recognition software.

Siri is a "virtual personal assistant" which responds to voice commands and lets users do things such as send messages and search the internet.

Zhizhen says it patented its Xiao i Robot software in 2004, while Apple's Siri made its debut with the release of the iPhone 4S in 2011.

The Chinese company's product works in a similar way to Siri and also works on Android as well as Apple devices. The firm claims it has 100 million users.

"The company will ask Apple to stop manufacturing and selling products using its patent rights, once Apple's infringement is confirmed," said a lawyer for Zhizhen.

"We don't exclude the possibility of demanding compensation in the future."

Apple was represented in Wednesday's initial court hearing in Shanghai but the full case is scheduled for July.

Last year, the US company settled another law suit in China that paid a separate firm, Shenzhen Proview Technology, $60m (£40m) over a long-running row concerning the iPad trademark.

Patent cases are common in the technology world with big money at stake and rival products often having very similar features and design.

Apple's much-publicised legal battle with Samsung has been fought in eight different countries.

However, a US judge this month slashed nearly half of the $1bn damages originally awarded to Apple for alleged infringement of its patents.

When asked for a response on the latest case Apple said it did not comment on pending litigation.

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Prudential Fined By FSA Over Failed AIA Deal

Prudential has been fined £30m by the Financial Services Authority for failing to be "open and co-operative" about a takeover attempt of an Asian rival three years ago.

The FSA said the UK's largest insurer should have informed regulators at the earliest opportunity about its efforts to acquire AIA, which - if successful - would have transformed the company's financial position.

The regulator also criticised the company's boss, Tidjane Thiam, who it said played "a significant role" in the decision not to inform the regulator about its expansion plans.

In one of its last actions before it is replaced by the UK's new regulatory regime on Monday, the FSA revealed that it only found about the deal - worth £23bn - after details were leaked to the media in February 2010.

There were calls for Tidjane Thiam to resign when the bid collapsed

The takeover attempt, which would have involved a UK record shareholder cash call of £14.5bn, collapsed after AIA's parent company AIG rejected a lower offer.

It cost Prudential's shareholders, who were mostly opposed to the deal from the start, £377m in costs, and led to calls for Mr Thiam to step down.

But although the FSA said the company's boss was "knowingly concerned in this breach", it stopped short of declaring him unfit.

The FSA's director of enforcement and financial crime, Tracey McDermott, said it was essential for companies to communicate with regulators.

"Prudential, led by Thiam as CEO, failed to give due consideration to its obligation to inform the FSA of this transaction, which would have had a huge impact on the group had it gone through," she said in a statement.

"That was a serious error of judgement for which Prudential is paying the price.

"This case should send a clear message to all board members of their collective and individual responsibility for the decisions they make on behalf of their companies."

Prudential said it regretted not informing the FSA earlier about the deal, but stressed the investigation did not concern current conduct.

"We wish to draw a line under the matter, and to ensure our constructive relationship with our regulators remains good," new chairman Paul Manduca said in a statement.

"Tidjane acted at all times in the interests of the company and with the full knowledge and authority of the board."

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Banks Warned Over £25bn Capital Shortfall

Cable Attacks Bank Capital Verdict

Updated: 10:50am UK, Wednesday 27 March 2013

By Mark Kleinman, City Editor

Vince Cable, the Business Secretary, has attacked plans to force Britain's banks to raise up to £25bn to strengthen their balance sheets, warning that it would slow the pace of economic recovery.

Speaking exclusively to Sky News, Mr Cable said the ruling by the new Financial Policy Committee (FPC) of the Bank of England was counterproductive.

The FPC said this morning that unrecognised future losses on bad loans and future provisions for product mis-selling meant there was a vast black hole in capital buffers across the banking sector.

But Mr Cable criticised the new committee, and said his view was echoed by Mark Carney, the Canadian who takes over as Governor of the Bank of England in June.

"The idea that banks should be forced to raise new capital during a period of recession is an erroneous one. This FPC exercise will prolong the time it takes for the British economy to recover by further depressing already-weak SME lending," Mr Cable told me.

"I believe the weight of the argument is in favour of counter-, not pro-cyclical, lending measures, and I rather suspect that the new Governor of the Bank of England shares this view."

Mr Cable's remarks - the most strident he has made to date on the issue - threaten to ignite a new Coalition row over banking reform just days before responsibility for regulating the industry formally returns to the Bank of England.

The Business Secretary pointed out that he had "a direct stake" in the debate over bank capital, as weak lending figures highlight the difficulty of increasing lending to small and medium-sized businesses (SMEs).

His comments also betray Mr Cable's frustration that the FPC's verdict will further entrench a mindset among senior bankers that they should accelerate the deleveraging of their institutions' balance sheets.

A succession of Treasury schemes, including the National Loan Guarantee Scheme and Funding for Lending have failed to kickstart SME lending, intensifying the pressure on George Osborne, the Chancellor.

The FPC's findings will now be digested by the major banks during boardroom discussions over the next 24 hours. Lenders ranging from Barclays and Nationwide will have to agree funding plans with the new Prudential Regulation Authority but are unlikely to make full statements to investors until these plans have been agreed.

The FPC has a remit to monitor risks in the financial system. Today's verdict on bank capital shortfalls is expected to be viewed in the City as an attempt to adopt a cautious approach amid ongoing problems in the Eurozone and escalating penalties for mis-selling payment protection insurance and other products.

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Cyprus Imposes Limits Ahead Of Bank Reopening

Cyprus is to impose strict limits on money transfers as it prepares for the planned reopening of its crippled banking system.

The measures, aimed at preventing a run on banks in the wake of the nation's controversial bailout, will include restrictions on large-scale transfers from the country's two largest and most troubled lenders, Bank of Cyprus and Laiki, it is understood.

They are expected to reopen tomorrow, almost two weeks after the Cypriot banking system was effectively shut down while the terms of the sovereign rescue were agreed and implemented.

Big depositors face losses of as much as 40% of their savings under the terms of the 10bn euro (£8.5bn) EU bailout.

Leaks of the draft capital controls include limits of 3,000 euros (£2,530) on the amount of cash individuals can take abroad.

Greek newspaper Kathimerini reported that the use of credit and debit cards would be restricted to 5,000 euros a month.

The cashing of cheques will not be accepted, Reuters said, although authorities are believed to be looking to increase the daily cash withdrawal limit per account from 100 euros to 300 euros.

Payroll payments will be allowed in order to help businesses, which have taken a huge hit as people cut down on their spending amid the uncertainty about the banks.

If implemented, these restrictions would be much harsher than those in other eurozone countries that have received rescue packages.

The leaks came hours after the Bank of Cyprus' chief executive was sacked by the governor of the central bank - reportedly on the orders of the international lenders behind the bailout deal.

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