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The Bank must not fear radical action. Britain needs negative interest rates | Business

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As Britain and the rest of Europe battle the second wave of the Covid-19 pandemic, desperate eyes turn to central bank bosses, wondering what rescue plans they have up their sleeves.

This year the Bank of England has pumped £300bn into the UK economy via its quantitative easing programme. The European Central Bank (ECB) pushed more than double that amount into the 19 eurozone countries, and the US Federal Reserve has done the same to keep credit flowing through the banking system.

These moves have prevented another financial crash, and given governments a degree of confidence that while they wrestled with the pandemic, central banks would keep cheap credit flowing.

Looking forward, the signals are not of recovery, but relapse, and it is not clear that the same old central-bank magic will make much of a difference. Inflation is sinking like a stone as consumers rein in their spending again. Annual prices in the eurozone fell by 0.3% in September following a 0.2% decline in August, according to figures last week. Consumer price inflation in the UK dropped to 0.2% in August, meaning prices barely rose.

Neither the Bank of England nor the ECB is anywhere near the 2% inflation level the central banks are expected to maintain, in theory.

To make matters worse, Britain’s high street lenders are beginning to tighten their lending criteria and increase mortgage and credit card loan rates, making it more difficult for poor and middle-income households to access credit. Understandable though this might be from a lender’s perspective, it runs counter to the Bank’s plans for a return to more normal credit flows.

Next on the conveyor belt of initiatives could be negative interest rates – or from the ECB’s perspective, cuts in rates beyond the -0.45% it already levies.

It may seem counterintuitive to charge a business or consumer for depositing money, but that is what a negative rate does. It then allows a bank to lend at a negative rate, which rewards borrowers. A negative-rate mortgage means the interest bill is credited to the borrower’s account rather than debited, reducing the sum borrowed over time.

Andrew Bailey, the Bank of England’s governor, has talked at length about negative rates over the past fortnight, mostly to downplay the likelihood of them ever being used – and certainly not until next year, when his officials have completed a long investigation into their impact.

As he told the House of Lords’ economic affairs committee last week: “It would be a cardinal sin on our part if we said something was in the toolbox which we didn’t know if it actually worked.”

Judging by the comments of NatWest’s chairman, Sir Howard Davies, Britain’s banks have done precious little work themselves to prepare for negative rates. He said there would be “technical issues and many contractual issues”, in a very downbeat assessment of cutting interest rates to below zero.

Bailey said there was evidence from the ECB that a negative deposit rate discouraged corporations from keeping money sitting idly in a bank account and encouraged them to invest the funds to earn a return. This is a good thing and exactly why former Bank of England policymakers Adam Posen and David Blanchflower long ago urged Threadneedle Street to adopt negative rates.

Bailey and Davies are understandably concerned that consumers would rather stick cash under the mattress than leave it on deposit and watch it shrink.

That is where the central bank comes in. If NatWest can channel cheap money from the Bank into high street products, it could maintain its deposit interest rates, its margins and profitability.

If Danish banks can do it – they are among the first in Europe to have offered negative-rate mortgages – so can British banks. It just takes a little willpower and planning. If they are absent at the moment, the Treasury could give lenders and the Bank a shove. The UK needs all the help it can get.

We were hooked on carbon. Covid gives us a chance to get clean

The fall in global carbon emissions since the coronavirus outbreak may appear to be one of the few silver linings from the pandemic, but even this wafer-thin glimmer looks set to fade. The International Energy Agency (IEA) estimated last week that carbon emissions from the energy industry had fallen by up to 7% this year, but warned in the same breath that this seemed unlikely to last.

As global economies emerge from lockdown, factories will whir back to life, the world’s steel furnaces and power plants will fire up once again, and passenger planes will return to the air. The brief reprieve from rising emissions in 2020 could be followed by the greatest surge in emissions growth on record.

Perhaps the most important lesson governments can learn from the current emissions lull is how deeply embedded the sources of carbon dioxide are in the systems of our everyday lives. That it has taken an unprecedented upending of society to shave 7% from the world’s carbon footprint reveals the challenge ahead if we hope to eliminate carbon entirely.

The message from the IEA is clear: achieving a structural decline in global carbon emissions will require nothing less than an overthrow of the systems that dominate today if we hope to create a carbon-neutral global economy by 2050. This low-carbon coup will need to happen within the next 10 years if we hope to avert the worst of the climate crisis. But if we’re smart, we will begin now, using the aftermath of the pandemic to rethink the way things were before.

The good news? The silver lining in the challenge ahead will prove far more resilient than the false hope offered by the emissions slump of 2020: this is the chance to design a society which is not only more sustainable, but fairer and more resilient, too.

Wetherspoons will weather this storm better than Johnson

Was it only last summer that Boris Johnson and Wetherspoons’ Tim Martin were seen chortling over a pint at one of the ubiquitous chain’s pubs?

Martin – an outspoken cheerleader for Brexit – endorsed Johnson’s candidacy for prime minister. Fast forward to the midst of the pandemic and Martin has lost faith in his man, after Spoons fell to a £105m loss – the first in its history – amid government-imposed restrictions on pubs.

In a typically wide-ranging monologue at a press conference last week, he quoted Macbeth and Bob Dylan, as well as comparing himself (as a joke, he stressed) to Nelson Mandela. But the Wetherspoons founder-chairman spent most of his time lambasting the PM’s handling of the pandemic.

He likened Johnson to a batsman facing the fast bowler Dennis Lillee in his pomp without wearing a cricket box. But even in these circumstances, the PM was doing a bad job, he said, “jumping wildly from pillar to post” depending on what pollsters said the public might like.

The notion that Johnson is more interested in appearances than substance is something Martin could hardly have been expected to predict when the pair were mugging for the cameras at that photo opportunity last year. Still, if you had to bet on who will be at the helm longer, you’d back Martin every time.

Spoons may have suffered a chastening and unfamiliar loss but it remains well placed to recover, with a strong balance sheet and freehold ownership of its pub estate. It has always beaten most competitors on price, something likely to stand it in good stead as the economic impact of the pandemic bites harder.

Martin will no doubt be delivering another lengthy diatribe next year, perhaps quoting from Macbeth again. (“I often thought, what the bloody hell is Shakespeare going on about?” he said.) But apart from when its boss trips over lines by the bard, Wetherspoons is keeping it simple, and benefiting from that.


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IBM, AMC Entertainment, Logitech, Travelers

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Noam Galai | Getty Images Entertainment | Getty Images

Check out the companies making headlines in midday trading.

IBM – Shares shed more than 6% after IBM’s third-quarter results showed a third straight quarter of declining revenue. The company earned an adjusted $2.58 per share for the quarter, which was in line with Street forecasts, while revenue was slightly above consensus estimates. IBM did not issue current-quarter guidance due to ongoing uncertainty surrounding Covid-19.

AMC Entertainment — Shares of the movie theater chain sank more than 11% after the company warned of a possible bankruptcy in a security filing related to a secondary stock offering. The company said it could burn through its existing cash by the end of 2020 or early 2021 without additional liquidity.

Travelers — The insurance stock gained 3.9% after it reported better-than-expected results for its third quarter. Travelers reported $3.12 in adjusted earnings per share on $8.28 billion of revenue. Analysts surveyed by FactSet were looking for $3.03 per share and $7.59 billion. The company reported growth in its underwriting business and its investment income.

Logitech — Shares of the accessory maker surged more than 18% after beating on the top and bottom lines of its third-quarter earnings. Logitech earned $1.87 per share on revenue of $1.26 billion. Wall Street expected 57 cents per share on revenue of $841 million, according to Refinitiv.

Procter & Gamble – Shares rose 1.5% after the consumer giant reported better-than-expected quarterly results. The company said its earnings per share came in at $1.63 in its fiscal first quarter, versus $1.42 expected per Refinitiv. Its revenue rose 9% as the pandemic fueled higher demand for its household products. P&G also raised its sales outlook for fiscal 2021.

Regions Financial — The stock popped more than 7% after reporting better-than-expected quarterly results. Regions Financial earned 52 cents per share on revenue of $1.64 billion, compared to the 33 cents per share on revenue of $1.49 billion forecast on Wall Street.

Synchrony Financial — Shares fell more than 4% after reporting disappointing sales for the third quarter. The company made $3.46 billion in revenue, missing estimates of $3.49 billion, according to Refinitiv. Earnings came in in line with estimates at 72 cents per share.

Comerica — The bank’s stock rallied more than 7% after reporting earnings that topped analyst expectations. Comerica earned $1.44 per share, above the 83 cents expected on Wall Street. Revenue came in at $710 million, higher than the forecast $696 million.

UBS — Shares of the bank rose more than 6% after reporting its quarterly profit doubled, driven by strong investment banking and a boost in profit from its wealth management division. UBS also set aside $2.5 billion for potential dividends and stock buybacks.

Revlon – The stock price gained about 1% even after its warning to bondholders that they might not get paid if the company’s distressed-bond exchange fails. The embattled cosmetics retailer said that without 95% participation from bondholders, most of the company’s debt will accelerate and become payable next month, in which case the bonds could be worth next to nothing.

PPG Industries – Shares gained more than 1% after the company reported third-quarter earnings. The paint and coatings maker earned $1.93 on an adjusted basis, which topped estimates by one cent. Revenue also came in above forecasts.

— with reporting from CNBC’s Yun Li, Jesse Pound and Pippa Stevens.


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GM’s official run at Tesla starts with electric Hummer debut Tuesday

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AMC warns bankruptcy is on the table as cash runs low

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A medical worker wearing a mask walks near the AMC movie theater in Times Square amid the coronavirus pandemic on May 7, 2020 in New York City.

Alexi Rosenfeld | Getty Images

AMC has agreed to sell as many as 15 million shares of its stock, but equity in the company could soon be worthless if the largest theater chain in the world files for bankruptcy.

On Tuesday, AMC continued to warn investors about its dwindling cash pile and said it may have to file for Chapter 11 bankruptcy if it is unable to secure additional sources of liquidity.

Shares of the company tumbled more than 11% on the news. AMC’s stock, which has a market value of around $387 million, has plunged 56% so far this year.

Chapter 11 bankruptcy would likely allow AMC to stay in business while it reworks its debts and sorts out new lines of liquidity.

Movie theater chains in the U.S. have been slammed by the ongoing coronavirus pandemic, which first shuttered theaters and then drove away customers and major Hollywood blockbusters.

AMC was particularly vulnerable because of the more than $4.75 billion in debt it had amassed before the crisis from outfitting its theaters with luxury seating and from buying competitors such as Carmike and Odeon. AMC has around 1,000 theaters and more than 11,000 screens globally.

“We will require significant amounts of additional liquidity and there is substantial doubt about our ability to continue as a going concern for a reasonable period of time; holders of our Class A common stock could suffer a total loss of their investment,” the company wrote in the SEC filing.

While New York Gov. Andrew Cuomo gave movie theaters hope over the weekend when he announced that theaters outside of New York City could reopen. Studios had told movie theater operators that they would withhold major releases if New York remained closed.

Also on Tuesday, AMC released a preliminary earnings report. The company said it had earned around $119.5 million in revenue during the three-month period ended Sept. 30. That’s a steep fall from the $1.32 billion AMC tallied during the same period last year.

For the first nine months of 2020 AMC took in revenue of $1.08 billion, a fraction of the $4.02 billion it garnered during the same period last year.


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