ALEX BRUMMER: Covid’s bitter toll on jobs

After the long economic and medical darkness of spring, midsummer offers some shards of hope.

There is a big recovery in the forward-looking purchasing managers’ index (PMI), with both manufacturing and services output higher.

The easing of lockdown for the hospitality industry – with the two-metre rules relaxed – is a boost, allowing pubs and other hostelries to operate at up to 70 per cent capacity.

That should improve life for suppliers such as brewers. There can be no pretence though, that there is going to be ‘V’-shaped recovery. 

In retail, the damage is going to be permanent. Intu’s fight for survival began long before anyone had heard of Covid-19.

Its £4billion debt burden and failed merger attempts made it a sitting duck for insolvency. 

Curiously, survival chances, even in a greatly diminished form, may have been improved by the pandemic. The lifting of the business rates burden for a year has given some tenants a better chance.

Covid-19 changes to insolvency law effectively give more powers to the biggest banking creditors and squeeze the lesser players such as vampire funds. That may improve chances of a debt moratorium.

It would also give trade, real estate and private equity buyers time to snap up some assets, with Trafford Park in Manchester and Lakeside in Essex the crown jewels.

There is a more sombre picture developing for jobs. The PMI figures show job losses lagging behind falls in output.

Furlough for a proportion of the 9m-plus people on the scheme is a holding pattern for something worse. 

At the end of next month there will be 330,000 school leavers (a proportion heading for higher education) and 100,000 graduates to be placed.

That is why the Chancellor Rishi Sunak’s non-mini Budget next month must primarily address the threat of 1980s-style unemployment of 9 per cent or more of the workforce against 3.9 per cent before lockdown.

Easing of employers’ national insurance contributions and a revamping of apprenticeships and training would be good places to start.

Fintech alert

Much of the Wirecard scandal focus has been on the misguided regulatory response by German regulator Bafin. 

It has been more concerned with shielding a fintech start-up from the evils of Anglo-Saxon capitalism than its prudential responsibility.

Belatedly, with the arrest of former chief executive Markus Braun, on grounds of falsifying income and market manipulation, the net finally is closing.

But the blow-up and discovery of a huge black hole cannot but cast a giant shadow over the whole fintech sector where the UK, with the encouragement of the authorities, is a brand leader.

Lockdown and the UK Government’s loan schemes for small and medium sized enterprises (SMEs) is the immediate preoccupation of High Street banks. 

They must be girding their loins for big loan losses as corporate failures and closures build.

Analysts reckon loan losses at RBS and Lloyds, with outsized exposures to SMEs, could rise by five times this year. 

Lloyds might also acknowledge that buying the MBNA credit card firm for £1.9billion in 2017 may not have been the wisest move as bad consumer debts rise. 

A better message for the commercial banks is that trouble in fintech may work to their advantage.

The shortened life of payday lender Wonga is a case in point. In the guarantor lending zone, Amigo is having governance difficulties. 

The BBC’s Watchdog programme criticised fintech start-up Monzo for freezing the accounts of thousands of customers.

Monzo and Revolut may be revolutionising finance but there is risk of sector contagion from the German experience.

High street banks are creating their own fintech experience. RBS has the Mettle app, HSBC has Bud and a good record of creating brands, notably First Direct. 

And TSB, after an initial tech meltdown, is in the space. Barclays has Smart Investor.

By creating or acquiring digital brands and skills the established banks have a chance to future-proof outdated models.

No Saints

Forget past Woodford-associated mis-steps, an indulgent fat-cat and inducements culture and generous fees.

Sprauncy investment adviser St James’s Place is having a good war. Excess savings caused by lockdown are coming in – £670million arriving in May– and assets under management are up 6 per cent to £112.5billion year-on-year.

Fools and their money…