LIVE – Updated at 13:49
Rolling coverage of the latest economic and financial news, as crypto turmoil leads to an “‘orderly wind down’ and ‘voluntary liquidation’ of Silvergate bank.
US jobless claims highest since December
The number of Americans filing new claims for jobless support has jumped.
In the week to 4 March, there were 211,000 initial claims for unemployment insurance, up from 190,000 the previous week.
That 21,000 increase in initial claims suggests that the US jobs market softened last week, although initial claims are still historically low.
The number of people receiving at least two week’s of support also rose by 69,000 to 1,718,000
The dollar has weakened, as investors calculate that this may be a sign that the economy is slowing, meaning further increases in interest rates may not be as high as expected.
This has pushed the pound up half a cent to $1.19, recovering some of its losses earlier this week.
Tomorrow’s Non-Farm Payroll will show how many jobs were created in February.
Layoffs by US companies in the first two months of this year have hit their highest level since 2009 after the financial crisis, a new report has shown.
The tech sector accounting for more than a third of the over 180,000 job cuts announced in January and February, the report from employment firm Challenger, Gray & Christmas Inc shows.
In February alone, layoffs in the United States stood at 77,770, more than five times higher than the 15,245 job cuts announced a year ago.
Profit warning from chip firm IQE shows economic slowdown
Shares in the Cardiff-based semiconductor company IQE have plunged by around a third this morning, after it reported a fall in orders.
IQE, which makes semiconductor wafer products and advanced material solutions to the global semiconductor industry, told the City that weaker demand has led to inventory build-up throughout the supply chain since mid-January.
Similar trends are evident across the industry, it says, citing reports that global industry sales of chips fell 18.5% in January.
IQE expect that this “near-term market softness” will be temporary, but it’s a sign of weakness in worldwide economic activity.
This inventory pile-up means that IQE now expects first-half sales in 2023 to drop by some £30m, a fall of more than one-third from the £86 million in revenues generated between January and June 2022.
AJ Bell investment director Russ Mould warns that IQE now has “little or no chance” of meeting sales forecasts for this year.
Shares are down 31.5% at 32.2p.
While IQE is only a small player in the global industry, the latest warning feels ominous, Mould says:
First, IQE the sharp drop in sales now expected for the first half means that management is already getting out the prayer mat for 2023 and hoping for an upturn in the second half. IQE is not the first UK-quoted firm to express this hope – just this week Spirent, Ibstock and STV have done the same, following Croda, Coats and others – but it does make the company and its shareholders a hostage to fortune if that second-half pick up fails to materialise.
And while IQE is expressing greater confidence in the latter half of 2023, thanks to indications of demand from customers, these are presumably the self-same customers who led the company up the garden path in 2022 and obliged IQE to issue profit warnings when incoming business levels undershot expectations.
Industry specialists are busily cutting their global sales forecasts for the semiconductor industry in 2023. They are now looking for a 12% drop in 2023, having started the year looking for a decline of just 3%.
Anders Kvamme Jensen, founder of the global brokerage and digital asset specialist AKJ, explains how Silvergate worked with the crypto sector:
While the FTX collapse had a direct impact on liquidity in the crypto markets, Silvergate is merely an infrastructure gateway to exchanges.
Most crypto hedge funds have developed relationships with multiple banks, also traditional ones, and are already well diversified on banking and other destinations following FTX. Traditional banks are cumbersome to deal with for transactions on crypto exchanges but looks better optically to an investor and is often used to onboard a fund these days.
The fund manager will thereafter use more crypto oriented banks, like Signature, to enter crypto exchanges.
Economics professof Nouriel Roubini, who has said that “literally 99% of crypto is a scam”, isn’t shedding a tear for Silvergate:
Responding to the report that the high-speed HS2 project will be delayed or cut, Prime Minister Rishi Sunak’s official spokesman has said:
“ou will know there’s work already under way on HS2.
Equally the rail minister has been clear we’re continuing to look at any cost pressures and ensure the project delivers value for money for taxpayers.
The employers’ organisation BusinessLDN has criticised the expected delays to HS2.
John Dickie, chief executive at BusinessLDN, warns that the move could push up the cost of the project:
Delaying construction of HS2 to save money is a false economy. Failing to invest now will likely increase costs over the long-term while also delaying the benefits for people and businesses across England.
The country needs this project to remain on track through swift and efficient delivery to drive long-term growth and decarbonisation. Slowing down construction of sections will do little to help levelling-up, particularly in the North.
With shovels already in the ground, we cannot afford yet another delay. Ministers should not hit the brakes and instead seize this once-in-a-generation opportunity to create a world-class, high-speed, capacity-boosting rail line that will transform connectivity between England’s major cities.
Like other construction projects, HS2 has been hit by rising costs of energy, fuel, raw materials and labour.
European stock markets have dropped into the red this morning, amid anxiety about rising interest rates.
The blue-chip FTSE 100 index has dropped by 54 points, or 0.7%, to 7875 points, further away from the record highs set last month.
Endeavour Mining, which owns and operates gold mines in Côte d’Ivoire, Burkina Faso and Senega, are the top faller, down almost 5% after reporting a 26% drop in EBITDA earnings for last year.
Mining group Rio Tinto (-4.6%) is next, followed by packaging firm DS Smith (4.5%) which reported signs of weakness in the corrugated box market today.
Investors are anticipating that the US Federal Reserve could lift its key interest rates by half a percentage point this month, following warnings from Fed chair Jerome Powell this week that interest rates are ‘likely to be higher’ than previously anticipated.
The Fed’s challenge is to slow inflation without sinking the economy, as Neil Wilson of Markets.com explains:
Sticking with 25bps this month would risk further loosening of financial conditions, which will only make the job to tame inflation harder. Unless there is a stinker of a jobs report tomorrow, the Fed will either need to go with 50bps or do 25bps and stress a much higher terminal rate.
And this comes back to the central dilemma – once a structural inflationary dynamic is let loose, the only way to rein it back in is to crash the economy, Volcker style.
[Paul Volcker put the US economy into a recession in the 1980s to get inflation under control].
Supermarkets have started to drop customer limits on buying certain fresh fruit and vegetables as supply issues that led to widespread shortages begin to ease.
Asda confirmed it had removed limits of three on cucumbers, lettuce, salad bags, broccoli, cauliflower and raspberries, leaving restrictions of three on just tomatoes and peppers, PA Media reports.
The supermarket said availability overall had improved as expected, and supplies of tomatoes and peppers were also expected to be back to normal within a couple of weeks.
Related: Why are UK supermarkets facing fresh food shortages?
JP Morgan sues former executive Jes Staley over Epstein links
Overnight, JP Morgan Chase (JPMC) launched legal action against its former top executive Jes Staley, the ex CEO of Barclays, over his links to sex offender Jeffrey Epstein.
Reuters has the details:
The largest US bank filed two complaints on Wednesday night in Manhattan federal court, where it is also defending against lawsuits by the US Virgin Islands and a unnamed woman, Jane Doe 1, who say JPMorgan aided in Epstein’s sex trafficking by keeping him as a client.
JPMorgan said Staley should cover some or all damages if it were found liable, and pay punitive damages for his “intentional and outrageous conduct” in concealing information about Epstein and putting his own and Epstein’s interests above the bank’s.
The Wall Street bank also wants Staley to repay all compensation from 2006 to 2013. Based on industry standards, that amount could total tens of millions of dollars.
Staley developed a relationship with Epstein in 2000, when he was hired to lead JP Morgan’s private bank.
In January, court documents accused Jes Staley, who stepped down as Barclays boss in 2021, of having a “profound friendship” with Epstein, which could “even suggest that Staley may have been involved in Epstein’s sex-trafficking operation”.
Related: Jes Staley had ‘profound friendship’ with Jeffrey Epstein, court documents claim
A lawyer for Staley had previously said “we wish to make it expressly clear that our client had no involvement in any of the alleged crimes committed by Mr Epstein”.
Fraud probe at UK tech firm WANdisco
UK software group WANdisco has asked for its shares to be suspended after discovering “potentially fraudulent irregularities” in its trading.
WANdisco told shareholders that an investigation by its chief executive and chief financial officer had found that it may have materially mis-stated its financial position, and its revenues.
WANdisco says it discovered “significant, sophisticated and potentially fraudulent irregularities” in its orders and revenues, “as represented by one senior sales employee”.
It told the City:
The identification of these irregularities will significantly impact the Company’s cash position and lead to a material uncertainty regarding its overall financial position and significant going concern issues.
WANdisco now expects its revenues for the 2022 financial year could be as low as $9m, not the $24m previously reported. It also has “no confidence” in the expectations for bookings in the final quarterof the year.
As a result, the company has asked for its shares be suspended from trading on the AIM market in London while it conducts an investigation with its external legal and professional advisers into the nature of this activity and its true financial position.
Earlier this week, WANdisco said it was in the “early stages” of examing a dual listing in New York to sit alongside its London-listed shares.
Victoria Scholar, head of investment at Interactive Investor, tells us:
After an impressive share price performance since the start of the year, up 43%, this black swan event has the potential to sharply derail its bull run and result in a significant negative rerating in the stock’s valuation, depending on the outcome of the investigation.
Just this week, shares hit a 12-month high after it announced plans for an additional listing in the United States, adding to the debate about whether a growing number of businesses are opting for a New York listing over a London equivalent. Whether these potentially fraudulent irregularities stands in the way of its plans for a dual listing is yet to be seen.
Shell chief’s pay package rose by more than 50% to nearly £10m in 2022
In other energy news, the recently departed chief executive of Shell’s pay jumped more than 50% to nearly £10m in 2022.
The package includes a multi-million pound bonus labelled “jaw-dropping” by campaigners.
The total pay package of Ben van Beurden, who stood down at the end of last year, rose from £6.3m in 2021 to £9.7m in 2022. His bonus rose from £2.2m in 2021 to £2.6m in 2022.
Last month Shell posted record profits of $40bn for 2022, fuelled by a surge in wholesale gas prices linked to the war in Ukraine. The profits led to calls for a windfall tax on North Sea oil and gas companies to be toughened.
Van Beurden’s payout is likely to cause anger among campaigners calling for executive pay to be curbed against the backdrop of the cost of living crisis.
Alice Harrison, the fossil fuels campaign leader at Global Witness, said:
It’s shocking but not surprising that one of the world’s richest oil and gas giants can hand its CEO a jaw-dropping bonus while hardworking people – nurses, paramedics, teachers – must strike to get fair pay.
It’s a sign of just how broken our energy system is that Shell and other fossil fuel companies have made record-breaking profits from an energy crisis that’s forcing families to choose between heating their homes and putting food on the table.
Related: Shell chief’s pay package rose by more than 50% to nearly £10m in 2022
MPs seek protection for investors tricked by greenwashing claims
MPs are urging the financial regulator to protect investors who fall victim to ‘greenwashing’ claims.
The Treasury committee is concerned that investors who are tricked by rogue claims should not have to pay to move investments to funds which are properly labelled as ‘sustainable’.
The Financial Conduct Authority (FCA) is looking to introduce criteria that a UK investment fund would need to meet to describe itself as ‘sustainable’, ‘ESG’, ‘green’ or similar.
The Treasury Committee is concerned that the regulator will not seek redress for customers who have been sold misleading investments, and might choose to move to actual ‘green’ funds. Such a move could incur charges.
Following correspondence with the FCA, Harriett Baldwin MP, chair of the Treasury committee, says investors who are tricked by greenwashing claims should not foot the bill for moving their money to actually sustainably funds.
Consumers who invested in funds believing they were doing their bit to save the planet must not be made to bear the cost of moving if they find out their fund isn’t so green after all.
Without a comprehensive cost-benefit analysis, the regulator’s proposals are lop-sided. Further work on what the costs are going to be, who will pay, and how the regulator will enforce the rules is clearly necessary.
In recent correspondence to the committee, the FCA assumed that one third of funds currently claiming to be sustainable would no longer qualify for a sustainable label, and another third would decide not to use the label, the committee says.
HS2 construction to be delayed to save money as costs soar
The government is set to announce that construction of certain sections of the HS2 rail line will be delayed to save money, our transport correspondent, Gwyn Topham, reports:
Ministers are preparing to deliver more bad news on HS2, with a statement expected imminently outlining both the extent of budget overruns and more cost-cutting proposals as soaring inflation hammers the high-speed rail line’s construction.
At least £2bn more will be needed for the first London-Birmingham stretch alone since the last official update in October, well above the contingency sums in the initial £44.6bn funding and will dampen further the prospects for the full network’s delivery.
While the chancellor, Jeremy Hunt, and Downing Street reiterated in January that the government will build the line between London Euston and Manchester, the Department for Transport has been under mounting pressure to find cost savings from HS2 – or leave other, non-HS2 rail investment projects to lapse.
Ministers have repeated their commitment to a £96bn rail plan drawn up last year but the final results of that spending are likely to be less than anticipated.
Related: HS2 costs soar as ministers prepare to deliver more bad news on timetable
And here’s the BBC’s Simon Jack’s take:
The Conservative MP Simon Clarke, former chief secretary to the Treasury, has welcomed the reports that construction of some parts of HS2 will be delayed to save money.
Clarke says (via PA Media):
This would be a sensible decision.
Having observed HS2’s progress as chief secretary, I have serious doubts as to value for money and cost control.
Many houses are being sold under the asking price, the Royal Institution of Chartered Surveyors (RICS) reports.
RICS’ monthly survey has found that in “the mainstream market”, covering prices up to £500k, around 60% of respondents suggested that prices were being agreed at below the asking price.
But, sellers of more expensive houses are more likely to accept a ‘discount’. For properties priced between £500k and £1m, the share jumped to just over 70%.
UK house prices on downward trajectory, surveyors warn
UK house prices “remain on a downward trajectory”, according to a new poll of property surveyors released this morning.
The Royal Institution of Chartered Surveyors (RICS) has reported that house prices continued to slip across the country last month.
The RICS house price balance, which measures the difference between the percentage of surveyors seeing rises and falls in house prices, has dropped to -48 in February from -46 the previous month, which is the lowest reading since April 2009.
However, there are also signs that the market is stabilising, as it recovers from the surge in mortgage rates after the calamatous mini-budget last September.
RICS found that property surveyors are less gloomy about the prospects for the housing market, as a slump in new buyer enquiries eased.
Tarrant Parsons, senior economist at RICS, says the increase in borrowing costs continues to dampen the market.
The housing market continues to adjust to the tighter lending climate, with stretched mortgage affordability still weighing heavily on activity.
Given the ongoing weakness in demand, house prices remain on a downward trajectory, and are expected to see further falls through the first half of the year at least.
Going forward, near-term expectations suggest market activity will remain generally subdued over the coming months, although the latest survey feedback shows tentative signs that the ongoing decline in buyer enquiries is now moderating.
The lender Nationwide reported that house prices fell at the fastest annual rate since 2012 last month, but Halifax found that they rose by 1.1%.
GB News losses rise to over £30m
GB News saw losses balloon to more than £30m last year, as staff costs surged as it signed new talent and advertisers remained wary of the right-leaning news operation, our media correspondent Mark Sweney reports.
The controversy-prone channel, which last week regulator Ofcom ruled broke impartiality for misleading viewers about Covid-19 boosters, racked up a pre-tax loss of £30.68m in the year to the end of May 2022.
The TV channel, and a more recent launch as a digital radio station, is aiming to provide a viable news alternative to established players such as Sky and the BBC.
However, the fledgling operation has spent a turbulent first almost two years weathering on and off-air turmoil and trying to shake a reputation as the “British Fox News”, and has found it difficult to win over advertisers wary of associating with its at times controversial output.
GB News made just £3.6m in turnover over the year – with the two biggest streams being £3m from advertising revenue and just over £550,000 in digital revenue.
The company reported a bill of £12.75m for its 175 staff at the end of May last year, up from 16 staff and less than £1m a year earlier when it was in start up mode.
Despite the ballooning losses, up from £3m when GB News filed its first public financial report for 2021, the company said that it continues to have the support of its backers for the foreseeable future.
“The company’s aim is to champion robust, balanced debate and to provide a range of perspectives on the issues that affect everyone in the UK,” it said in financial filings published on Thursday, adding:
The directors are confident about the future outlook for the company.
Last August there was a shakeup among its backers, with the founding investor Discovery selling up, and the existing shareholders Sir Paul Marshall, the Brexiter hedge fund tycoon, and Legatum, the Dubai-based investment company founded by the New Zealand billionaire Christopher Chandler, taking control.
Related: Discovery sells GB News stake as directors resign in shake-up
Financial accounts for Discovery’s UK business subsequently revealed that it sold its 25% stake for £8m, a 60% drop on the original £20m it paid, which would suggest the value of GB News has fallen from £80m at launch to £32m. The latest £60m funding round, in which the co-founders Andrew Cole and Mark Schneider resigned as directors and sold their stakes, could sustain GB News for a number of years if it chose to cut costs dramatically.
“This renewed investment in the company gives GB News the financial capability to build for the long term in what is a hugely competitive market,” said GB News.
Silvergate collapse: What the analysts say
The collapse of Silvergate comes after the bank failed to restore financial stability amid the crypto currency turmoil, explains Victoria Scholar, head of investment at Interactive Investor:
Shares in Silvergate Capital plunged 43.79% after-hours extending a drop of 7.8% during yesterday’s session stateside. The cryptocurrency-centred lender announced plans to wind down in the wake of the collapse of crypto exchange FTX. $8 billion of deposits were pulled from Silvergate resulting in a $1 billion fourth quarter net loss amid a ‘crisis of confidence’ among investors about the potential ripple effect from FTX’s high profile demise. This year the bank had been trying to improve its financial position by cutting 40% of its workforce or around 200 jobs. However Silvergate has failed to restore financial stability, now opting for voluntary liquidation instead.
Aside from the FTX scandal, crypto-focused businesses like Silvergate have been caught up in the volatility across the crypto complex lately with bitcoin shedding nearly 65% of its market value last year. Although cryptos started to recover in January, February was more challenging with bitcoin retreating from its recent highs.
Ram Ahluwalia, the chief executive officer of digital investment advisor Lumida Wealth, has said the loss of the Silvergate Exchange Network is disappointing, explaining:
It’s more of a strategic loss of critical infrastructure for crypto.
Silvergate Exchange Network, was its crypto payments network which enabled round-the-clock transfers between investors and crypto exchanges.
Sheila Warren, CEO of the Crypto Council for Innovation, says Silvergate’s collapse shows the dangers of a bank becoming overly exposed to one sector.
Discouraging banks from providing deposit accounts only exacerbates this problem by creating fewer options for any one sector to obtain banking services. The problem is not about crypto, but concentration risks.
In this case, this is a voluntary wind down under California law, which implies that they will be able to make depositors whole. Neither taxpayer money, nor the FDIC, are involved.
Hopefully, this situation serves as a needed reminder to regulators of the risk of concentration, which is certainly not unique to the crypto industry, and will cause them to encourage responsible distribution across the banking sector.
The decision to wind up Silvergate shows what can happen when “a bank is over-reliant on a risky, volatile sector like cryptocurrencies,” US Senator Sherrod Brown has warned.
Senator Brown, who chairs of the Senate Banking Committee, added that:
When banks get involved with crypto, it spreads risk across the financial system and it will be taxpayers and consumers who pay the price.
Windfall tax “wipes out” profits for North Sea’s biggest energy producer
The North Sea’s biggest producer has hit out at the windfall tax on oil and gas companies after a near 700% surge in profits to $2.5bn (£2.1bn)) was “all but wiped out” by the levy.
Harbour Energy has reported that its pre-tax profits rose sharply last year to $2.5bn, up from $315m in 2021, lifted by the surge in wholesale energy prices following the Ukraine war.
However, its after-tax profits fell from $101m in 2021 to just $8m in 2022, and it’s taken a large one-off tax charge of the related to the energy profits levy.
Harbour said it has paid $205m in UK windfall tax since it was introduced last May.
Chief executive Linda Cook said production rates, margins and safety had improved, adding:
However, the UK energy profits levy, which applies irrespective of actual or realised commodity prices, has disproportionately impacted the UK-focused independent oil and gas companies that are critical for domestic energy security.
For Harbour, the UK’s largest oil and gas producer, it has all but wiped out our profit for the year. This has driven us to reduce our UK investment and staffing levels.
Here’s the full story:
Related: North Sea’s biggest energy producer says UK windfall tax wiped out surge in profit
The UK housing market is not about to fall off a cliff, predicts Tom Bill, head of UK residential research at Knight Frank, despite the pressure on prices revealed by RICS today.
Bill predicts prices will only drop by ‘a few percent’ this year:
The further we get from the mini-Budget, the more things improve in the UK housing market. Asking prices will continue to come under pressure as buyers recalculate what they can afford but the market is not about to go over a cliff.
The weak start to the year for mortgage approvals means bigger lenders will be focussed on market share, which will keep downwards pressure on rates but the key for buyers is the overall sense of stability rather than movements in borrowing costs that are likely to be small. Transaction levels will come down from the heights seen during the pandemic and we expect prices to fall by a few percent but the evidence is that 2023 will be a solid year for the housing market.
One in 10 UK businesses were affected by industrial action in January, figures from the Office for National Statistics show.
The ONS reports that more than a quarter (26%) of those businesses reporting that they were unable to fully operate as a consequence.
Train staff, National Highways workers, nurses and teachers all held strike action early this year, as unions pushed for pay rises to protect workers from soaring inflation.
Related: Up to half a million to strike across UK as talks go ‘backwards’
The ONS also reports that one in eight businesses with 10 or more employees experienced global supply chain disruption in January – a shortage of materials was the most likely cause.
And half of businesses reported that they were able to get the materials, goods or services they needed from within the UK in January 2023 without encountering any supply issues.
The recruitment firm PageGroup has reported that it is still a struggle to find candidates for jobs, despite the economic jitters.
In its latest financial results, this morning, PageGroup said the employment market remained hot, after its profits hit record levels last year.
Nicholas Kirk, chief executive officer, says:
Looking forward, there remains a high level of global macro-economic and political uncertainty in the majority of our markets. However, against this backdrop, we continue to see candidate shortages and good levels of vacancies.
PageGroup, which earns fees by placing candidates at companies, reported that its operating profits jumped to £196.1m for 2022 from £168.5m in 2021.
US senator Elizabeth Warren has tweeted that Silvergate Bank’s failure is “disappointing, but predictable”, and accused the company of “severe due diligence failures”:
Introduction: Crypto bank Silvergate to shut down in face of market turmoil
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The turmoil in the crypto sector following the collapse of crypto exchange FTX has claimed crypto-focused bank Silvergate.
Silvergate Capital Corp announced last night that it plans to wind down Silvergate Bank‘s operations and voluntarily liquidate it in an orderly fashion, after incurring losses following the dramatic collapse of FTX in November.
Silvergate is one of the few mainstream financial organisations to have focused on providing services to the cryptocurrency sector. That helped it grow rapidly until the ‘crypto winter’ began last year, when prices of crypto assets tumbled.
Silvergate announced that:
In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward.
The Bank’s wind down and liquidation plan includes full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.
The news sent Silvergate’s share price slumping in after hours trading, down 43% to $2.76. They’re down over 96% over the last 12 months.
Once a small community bank, Silvergate reinvented itself during the crypto boom to provide services to companies that struggled to work with conventional financial providers.
The collapse of Sam Bankman-Fried’s crypto exchange FTX in November created a crisis of confidence in the sector, and drove investors to pull money from Silvergate.
At the start of January, Silvergate reported that customers had pulled more than $8bn (£6.7bn) of their crypto-related deposits in the final quarter of last year, forcing it to sell billions of dollars of assets to protect its balance sheet.
Related: Silvergate forced to cover $8bn worth of crypto-related withdrawals
Silvergate’s future has been in doubt since it delayed the publication of its annual report last week, and announced a fresh sale of assets to repay debts.
Related: Near 50% fall in Silvergate’s shares over FTX exposure prompts survival doubts
9.30am GMT: Realtime business and economic activity data released by the Office for National Statistics
12.30pm GMT: Challenger survey of US job cuts
1.30pm GMT: US weekly jobless figures