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More than a slap on the wrist

Sanctions against Deloitte and two audit partners in relation to Autonomy Corporation Plc

The Financial Reporting Council (FRC) today announces sanctions against Deloitte and former partners, Richard Knights and Nigel Mercer, following an investigation in relation to the audit of the published financial reporting of Autonomy Corporation Plc (Autonomy) for periods between January 2009 and June 2011 (the Autonomy Audits). An independent Disciplinary Tribunal made findings of Misconduct following a seven-week hearing during October and November 2019 and sanctions were determined following a hearing in July 2020.

Sanctions

  • Deloitte has been fined £15 million, severely reprimanded and has agreed to provide a Root Cause Analysis of the reasons for the Misconduct, why the firm’s processes and controls did not prevent the Misconduct and whether the firm’s current processes would lead to a different outcome.
  • Richard Knights has been excluded from membership of the Institute of Chartered Accountants for England and Wales for five years and has been fined £500,000.
  • Nigel Mercer has been fined £250,000 and received a severe reprimand.

 

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Q3 dividends

PRA meeting, believed to be not later than 79 AD

For FTSE 100 and 250 stocks with dividends to be paid by end of September: 40% down on the level this year, as opposed to 60% down for Q2. So, you know, getting somewhat better.

Corporate bonds generally back to pre-virus levels, with a some troubled exceptions (aviation, tourism).

So perhaps the PRA was right in claiming that volatility is short term, and that what goes down is bound to go back up in time.

No, you know we don’t believe that.

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Equity release in the news again

By Adam Williams, Sunday Telegraph.

..  those looking to release equity have been urged to compare the fees charged by advice firms. The UK Shareholders’ Association, a not-for-profit consumer group, found that some homeowners could be charged almost 10 times more if they used certain advice firms. All equity release sales must be conducted through an adviser.

But the UKSA said the fee often bore no relation to the amount of advice given. It found that one broker, Age Partnership, charged a fee equivalent to 2.25pc of the cash released. This would mean that a 70-year-old taking out a 40pc mortgage on a home valued at £750,000 would pay £6,750 in fees.

[..]

The UKSA questioned whether there was a potential conflict of interest at firms that only charged customers who were sold a loan, rather than charging for the advice itself.

 

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It was twenty years ago today

Source: Aviva

The chart above shows one of the stranger features of equity release mortgages: the wide variation between the projected indexed value of a property, and the actual sale value it achieved at auction. The data is based on Aviva’s Equity Release Funding No. 4.

The red line is the rebased value of the property index used by the fund, the Halifax, from October 2007 to July 2020.

Continue reading “It was twenty years ago today”

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Just wrong

From the Just Group 2020 interim:

There has been significant academic and market debate concerning the valuation of no negative equity guarantees in recent years, including proposals to use risk-free based methods rather than best estimate assumptions to project future house price growth.

To be sure, there has been significant debate about the subject, but there still seems to be significant confusion about what the debate is.

Continue reading “Just wrong”

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Just managing

Just Group interim out today, with an upbeat commentary that pleased the analysts. Who are easily pleased, it seems.

  • Solvency Coverage is up to 145% from 141%, but as they say this figure allows for a notional recalculation of TMTP as at 30 June 2020, and without it the SCR would have fallen to 123%, see p.61.
  • Page 8 shows that the TMTP (a regulatory asset that bolsters a firm’s balance sheet) increased from £1,891m to £2,201m). There is no explanation for the increase that I can find in the report.
  • They claim that “movements in the financial markets have had limited impact to date on the Group’s capital position”, but then perversely note that credit downgrades have affected over 16% of the Group’s corporate bond portfolio.1
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Are UK banks really as strong as the Bank says?

Youtube this morning.

With the economy undergoing the biggest downturn since 1709, it is natural to ask if UK banks are strong enough to withstand this downturn and still function normally. The mood music coming from the Bank of England has certainly been reassuring. But are UK banks really as strong as the Bank says?

The answer, sadly, is no. In this video, Professor Syed Kamall (IEA Academic and Research Director) chairs a discussion with Dr Dean Buckner and Professor Kevin Dowd, who authored a recent IEA Discussion Paper “How Strong are British Banks: and can they pass the Covid Stress Test”.

Professor Dowd and Dr Buckner argue that Banks are more fragile now than they were going into the last crisis. The Bank of England’s failure to ensure the resilience of the banking system suggests a need for radical reform that does away with the regulator.