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Latest news

  • US Republicans and Democrats warn they are “far apart” on stimulus plans, with jobless benefits set to expire soon

  • Germany has tightened its abattoir laws following virus outbreaks

  • UK drugmaker GlaxoSmithKline has warned that its annual profits will be hit unless more patients resume getting vaccinated for standard diseases, a process that has been badly disrupted by lockdowns 

Banks expect big losses from pandemic loans

One common theme of the second-quarter reporting season has been the growing acceptance from banks that many of their emergency pandemic loans will turn sour.

Barclays this morning said it was adding another £1.6bn to its reserves for bad loans, although the blow was softened by a surge in revenue in its investment banking operation. Deutsche Bank, Germany’s biggest lender, similarly reported a quarterly loss softened by a bond trading bonanza. Virgin Money — the UK’s sixth-largest bank — is bracing for rising mortgage defaults as the government’s furlough scheme comes to an end and many people lose their jobs.

European banks could be hit by as much as €800bn in loan losses over the next three years in a worst-case scenario that includes a second wave of coronavirus infections, according to consultants Oliver Wyman. UBS, the first of the big names to report last week, announced another $272m in loan-loss charges, although it too was buttressed by earnings at its investment banking arm.

American institutions could be hit even harder, according to a study reported by US banking editor Laura Noonan. Consultancy Accenture predicts loan loss charges of more than $880bn across 100 US and European banks from 2020 to 2022. The losses for US institutions represent 10.2 per cent of their 2020 loan book, compared with 4.6 per cent for those from Europe.

Governments and regulators have acknowledged the need for loans to be made available. The Fed yesterday extended its emergency lending facility by three months, while the FT revealed this week that the UK Treasury was in talks with the country’s largest banks about tackling the bad debts expected from the government’s coronavirus “bounceback” loans scheme.

“The first quarter was about whether you are resilient and, for some, able to survive,” UBS chief Sergio Ermotti told the FT this week. “The second quarter will be about whether you can demonstrate adaptation. We have already entered the ‘lessons learned’ phase of coronavirus.”

Markets

Global corporate bond issuance halved in July after the pandemic-induced borrowing binge of previous months slowed down. Companies have been rushing to issue debt to replace lost earnings since March, when the Fed announced measures to support the US economy and markets.

Column chart of Global corporate debt issuance, by month ($bn) showing The corporate borrowing binge takes a breather

Chief international finance correspondent Henny Sender says managers of sovereign wealth funds and state pension funds worry they will be politicised if they are enlisted in the fight against Covid-19. They fear politicians could pressure them to provide direct financial support to their economies by propping up weak companies.

It is hard to overstate the importance of the $20tn market for US government debt, or the alarm caused by its crisis period in March, write US markets reporter Colby Smith and global finance correspondent Robin Wigglesworth in our Big Read. Authorities are considering how they can prevent similar problems in the future.

Signs of strain emerge in world’s largest government bond market

Business

Second-quarter results season is highlighting clear winners and losers. General Motors announced a loss for the second quarter thanks to falling demand for cars, especially in its US home market, while Boeing said it would make deeper production and job cuts thanks to the pandemic-induced collapse in air travel. By contrast, revenues at Shopify, the largest ecommerce platform in the US after Amazon, soared 97 per cent, causing its shares to surge.

Care homes in England and their residents were “thrown to the wolves” during the pandemic, according to a report from a parliamentary committee. The lack of central control was a key issue, with a response hampered by a patchwork of responsibility involving central and local government and private and non-profit providers.

Amazon said it would offer free grocery deliveries to its UK Prime members by the end of the year, posing a severe challenge to established services from Tesco, J Sainsbury and Ocado. One analyst said the company was “hitting the nuclear button”. “It is one of the boldest moves they have ever made . . . the Covid pandemic has presented them with an opportunity to tighten their grip on ecommerce. They are using the frequency aspect of food to bait people into their ecosystem.”

Global economy

US Republicans yesterday unveiled their $1tn stimulus proposals, which included cutting jobless benefits by two-thirds but all eyes today are on the upcoming US Federal Reserve policy announcement at 2pm Eastern/7pm UK time, which you can follow on our live blog. Here are five things to watch.

UK unemployment could hit 10 per cent by the end of the year because the job furlough scheme is ending too soon, according to the National Institute for Economic and Social Research. The think-tank forecasts a drop in UK output of 10 per cent for 2020 with ongoing “scarring effects” for the job market. Extending the job scheme until the middle of next year — at an estimated cost of £10bn — would have been relatively inexpensive and limited the rise in unemployment, it said.

Consumer confidence in France dropped on fears of job losses and the spread of coronavirus while new data from Spain showed retail sales recovering slowly overall but tourist destinations such as the Balearic Islands and the Canaries badly hit.

Line chart of Monthly French consumer confidence index (100 = long run average) showing French consumer confidence slides

Readers respond

Jaga the Wise comments on Coronavirus turns the City into a ghost town

Teleworking may work for established employees like myself, but what about new recruits? Imagine joining a new workplace or a new team during this crisis? How do you get to know your co-workers?

We are social animals. We flourish in groups. It's where we come up with our best ideas. It's in that environment that we are the most productive. Chats over coffee, office banter, lunches with colleagues may seem like wasted time, they are not. They are the sources of ideas, a place to reduce stress, a social outlet.

Get in touch

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The essentials

Experts have been taken aback by how fast coronavirus has reappeared across Europe now lockdowns have been eased and international travel has restarted. Spain is experiencing a new surge while eastern Europe and the Balkans are experiencing large numbers of cases for the first time. “We’ve let our guard down,” said the head of Germany’s public health authority. The FT Editorial Board said the illusion of a return to “normality” had been shattered.

Covid-19 resurgence varies across Europe. Seven-day rolling average of new cases (per million of the population)

London’s Heathrow airport said passenger testing was needed urgently to help airlines recover from the damage wrought by the pandemic. Current policy left the UK “playing a game of quarantine roulette” that was benefiting its European rivals, it said. The travel industry is pleading for a rethink. Read our explainer on the UK-Spain travel restrictions.

The video witnessing of wills will become legal in England and Wales in September to overcome the difficulties of recording someone’s final wishes while keeping to social distancing rules.

Final thought

“Gatherings in a pandemic, particularly when full of hot, perspiring people on mind-bending drugs, are obviously a bad idea. So why, despite 30 years of authorities’ efforts to stamp them out, have illegal outdoor dance parties sprung up again?” House and home editor Helen Barrett reports on the return of the rave.

© Dave Swindells


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