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Business

UK banks prepare code of conduct on defaulting of Covid-19 business loans

UK banks are preparing a code of conduct for pursuing businesses that default on taxpayer-backed coronavirus loans, amid industry estimates that up to eight out of 10 borrowers could fail to repay in full.

The Guardian understands that the industry lobby group UK Finance and the state-owned British Business Bank have kicked off talks with commercial lenders in an effort to set industry-wide debt collection standards well ahead of repayments falling due.

Loans granted under the coronavirus business interruption loan scheme (CBILS) and bounce-back loan scheme (BBLS) for small and medium-sized businesses have a 12-month repayment-free period, and on the first batch this will run out in the spring of 2021.

Discussions about what happens on defaulted loans then are understood to be in the early stages. However, one banking executive said the industry-wide “code of conduct” around collections would likely result in a “lighter-touch approach” than some banks might be used to with run-of-the-mill commercial loans. Each bank usually has its own policy of what to do in the event of a default.

“That’s really important so that customers get fair treatment and equal treatment. If they have a bounce-back loan with Barclays or HSBC, it doesn’t feel more heavy-handed in one place or another – it’s agreed,” they said.

The BBLS comes with a 100% government guarantee, which means the state will cover a bank’s losses if a customer defaults on their loan. The CBILS, meanwhile, comes with a 80% guarantee, meaning banks will be left to shoulder 20% of potential losses. However, banks are expected to try to recover the full amount before accessing the guarantee. How aggressively they will pursue those debts is at the centre of the discussions.

Industry estimates suggest that anywhere between 40% to 80% of businesses could default on their bounce-back loans, the banking executive said. A portion of that will be down to fraudulent applications, which are believed to account for about 10% to 15% of total BBLS, they added.

A City taskforce warned last month that £36bn worth of government-backed loans could turn toxic by next year, as companies struggle to repay growing debts during the Covid-19 crisis.

Government data released earlier this week showed that banks had approved more than 1m loans worth £42.9bn as of 28 June, including £11bn worth of CBILS and £29.5bn of BBLS. Most BBLS borrowers are small business owners or sole traders that have never taken out a commercial loan.

There is currently no deadline to set a debt collections standard, but one high street banking source said the “the decisions need to be in place fairly quickly. Conversations have started, but we need to get to a point where we know what position we’re in.”

Bankers are desperate to protect their reputations after scandals such as that which engulfed Royal Bank of Scotland’s Global Restructuring Group (GRG), which was accused of “systemic and widespread” mistreatment of SMEs between 2008 and 2013.

“Banks want to make sure that they honour the guarantees offered by the government in the long run, too. They don’t want to do anything that puts that in jeopardy,” the banking executive said. Losing access to government guarantees could leave banks nursing billions of pounds’ worth of losses when companies default.

UK Finance and the British Business Bank – which manages the state-guaranteed loan schemes – are holding a series of meetings with different groups of banks, which will continue over the coming weeks, another source with knowledge of the talks confirmed.

A British Business Bank spokesperson said: “The British Business Bank has regular meetings with lenders, UK Finance, HM Treasury and others to discuss the operation of the government’s Covid-19 response to loan guarantee schemes. Among other topics discussed is the need to treat customers fairly should collection of debts be required in the future.”

UK Finance declined to comment.

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World News

Boris Johnson returns to his happy place: upbeat, vague and incoherent

The past few months have been a bit of a downer for Boris Johnson – just one bad news story after another. So it was time for a rewrite. The equivalent of Dallas series nine when it turned out everything had been a dream. Boris would go back to his happy place of last year’s general election campaign, when all he had to do was turn up and say the same old bollocks about “getting Brexit done” and “levelling up the country” and people would be fawning over his every word.

So at the Dudley Institute of Technology in the West Midlands, Johnson rehashed one of his old campaign speeches for the relaunch of “Love Boris”. Only without the bits about Brexit, which was well and truly done now, given that this was the last day he could have asked the EU for an extension to the transition. Here was Boris at his most upbeat. His most vague. His most incoherent. God help baby Wilfred if Boris ever gets round to reading him a bedtime story.

There was the briefest of nods to the coronavirus pandemic, but even here Boris didn’t want to kowtow to all the doomsters and gloomsters who had picked holes in the government’s response over the past few months. Yes, a few people had died and it was awkward that there was a spike in the infection rate in Leicester just as he was planning to ease lockdown restrictions elsewhere in England, but couldn’t we all forget about the bad stuff just for today? Why not concentrate instead on all the hundreds of thousands of people the government hadn’t managed to kill and the millions who had been saved – for the time being, at least – from unemployment through the furlough scheme?

Then we got down to the nitty-gritty. Boris didn’t want to draw comparisons with Franklin D Roosevelt’s New Deal, though if others did, he wasn’t going to complain. Only FDR had spent 40% of US GDP on a whole load of job creation schemes, while Boris was stumping up the princely sum of 0.2% of UK GDP. Or £5bn of old money that had already been promised in the March budget.

As so often with Boris, his whole speech was based on a lie. He was acting as if he was announcing something new when the money had already been accounted for. You can get away with recycling old columns for the Daily Telegraph, but you quickly get found out as prime minister.

It also turned out that the £5bn was going to have to go an awfully long way as Boris listed the various infrastructure improvements he had in mind for schools, hospitals, roads and housing. Though it did also sound as if he thought hospitals were funded out of philanthropy, as he went out of his way to praise the £35m that Captain Tom had raised for the NHS.

All this, though, depended on Operation Speed – something the prime minister may have taken too literally, as the entire speech sounded as if it was being delivered by someone off his head on amphetamines. Just one long gabble of barely connected sentences with only a passing nod to reality.

Planning rules would be ripped up. Honest Bob Jenrick had merely been a month or two ahead of the game. There would be no more room for “newt-counting”, as the French and Germans were well ahead of us in housebuilding. Just as well we were leaving the EU then. Boris didn’t even appear to realise that he was now promising to build in eight years what he had originally promised to build in five. Speed can do that to you.

Having raced through a long list of government infrastructure projects – Boris is going to get a hell of a shock when he realises who has been in government for the past 10 years to let things gets so bad – he was momentarily concerned that some traditional Tories might think he was a communist for even daring to suggest doing more for those who had been hardest hit by austerity. Not that there had ever been such a thing as austerity. That was just a word dreamed up by the Labour party along with David Cameron and George Osborne.

So just to make sure that everyone knew he also cared deeply about the filthy rich, he proposed a weekly “clap for capitalists” night. Just as on Thursdays the public had gone out on to the streets to applaud the NHS and emergency services, Friday should be the day we go outside to thank Richard “Dirty” Desmond and the other multimillionaires who had done so much to Make Britain Great Again. Though we must be sure to clap very loudly, or some of them might not hear from their tax havens abroad.

Predictably, Boris struggled when it came to the questions. He merely shrugged when it was pointed out to him that £75 a head probably wouldn’t go that far and that right now more people were worried about the more immediate concern of whether they would still have a job in a couple of months than building projects that might take years to complete. “Um,” he said, sure that jobs in the hospitality and services sectors would soon be back on stream.

“Wait for what Rishi has to say next week,” he added, before getting himself into a tangle by committing himself to a public sector pay freeze or a tax rise. Let the chancellor sort that problem out. Boris looked to his handlers before heading for the exit. It had been a shambles, but it had served a purpose. For a few hours he had got people talking about things that may or may not happen instead of coronavirus. And he’d conveniently diverted attention away from Michael Gove’s hopeless efforts to explain to the Commons why the best way to ensure a diverse and decentralised government was to stuff No 10 with trusted “yes men”.

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Business

Foreign travel boost as UK gives green light to overseas trips

Travel operators have reported a big rise in bookings and inquiries about international holidays as UK holidaymakers rush to book Mediterranean breaks after the government gave the green light to overseas trips from early next month.

TravelSupermarket, the holiday price comparison site, said this weekend had been the busiest for searches since the lockdown was imposed in March. Price comparison searches for holidays were up 100% and “click outs” and bookings were up 50% compared with last weekend, it said.

Tui, Britain’s biggest tour operator, and Hays Travel, which bought out the majority of Thomas Cook’s high street travel agencies last year, said bookings were up by at least 50%. Other operators, including online travel agency On the Beach and Dnata travel group, which owns brands including Travelbag and Travel Republic, also reported a big pick-up in inquiries.

Destinations in Spain, Greece, France and Italy were at the top of holidaymakers’ lists after the government said it expected to announce so-called “air bridge” arrangement with those countries, cancelling the need for 14 days of quarantine.

The list of safe countries drawn up by the government’s Joint Biosecurity Centre and Public Health England will rank countries as green, amber and red based on the risk from Covid-19. People will be able to travel freely to both green and amber countries.

Further details of the list will be given to Parliament on Monday and the full details will be revealed on Wednesday, when the current Foreign Office travel warning against all but essential international travel will be lifted from 6 July for countries deemed safe.

Irene Hays, the co-owner of Hays Travel, said inquiries had reignited over the last 10 days, but bookings jumped 52% on Saturday compared with Friday after the outline of the government’s plan emerged. “Its absolutely terrific,” she said. “The announcement hasn’t been made yet and the Foreign Office is advising against all but essential travel, so there is still hesitancy, but there is a burst of demand.”

Hays said that travellers were also looking at booking holidays outside Europe for late 2020, with New York, Iceland and Bali top of the list.

“This decision will save jobs and businesses. It’s been an incredibly hard time for the travel industry,” she said. Hays Travel has already brought most of its 3,000 staff back from furlough to deal with customer queries and expects to begin advertising for new staff this week. It will launch 700 apprenticeships in the autumn.

Andrew Flintham, managing director of Tui UK and Ireland, said bookings had increased by 50% week on week, with holidays to Spain and Greece looking the most popular this summer. “We know there were a lot of people hoping to travel and waiting for certainty that would be possible,” he said. “It’s a hugely positive step forward for the travel industry and I know our customers will be ecstatic that their summer is saved.”

Tui will restart its operations in the UK on 11 July, with the first flights departing from London-Gatwick to Ibiza and Birmingham to Palma. It will operate 44 flights a week to eight destinations between 11 and 24 July and will increase to 19 destinations from 25 July, ramping up its short and mid-haul flying from August. However, Tui has cancelled all Florida holidays for at least the next five months after a surge in coronavirus cases in the US state.

Simon Cooper, chief executive of On the Beach, said it had seen a “significant increase” in last-minute searches and bookings for countries expected to be included in the air bridge scheme, albeit from a low base. “We look forward to the government announcing further details next week,” he said.

The announcement has long been awaited by airlines and travel operators who have been struggling to stay afloat. Virgin Atlantic is battling to line up a financial bailout this week, while thousands of jobs have been cut at British Airways, Ryanair, easyJet and Aer Lingus.

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Economy

‘Worst deal in history’: Viagogo and StubHub merger faces investigation

A $4bn (£3.22bn) takeover that has been dubbed the worst deal in history just got that little bit worse.

Ticket resale company Viagogo completed the $4bn buyout of US market leader StubHub from online auction firm eBay in February.

Weeks later, the global coronavirus pandemic effectively shut down the global live events business from which the two firms make all of their money.

On Thursday, the UK competition watchdog compounded Viagogo’s misery by launching an “in-depth” investigation into the tie-up after its initial investigation concluded that a marriage between two firms with an 80% share of the ticketing market might be bad for consumers.

The decision, by the Competition and Markets Authority (CMA), presents a major problem because the two businesses must be run as separate entities while the regulator carries out an investigation that could last six months.

This will significantly reduce cost synergies, even as both companies’ revenues have dried up altogether.

Viagogo founder Eric Baker now faces an uncertain future over a landmark deal that, just weeks ago, looked to be a satisfying personal victory, as well as a business one.

The entrepreneur co-founded StubHub but was forced out after a falling out with business partner Jeff Fluhr.

While Fluhr retained control, Baker moved to London where he replicated StubHub’s US success by setting up Viagogo to conquer the European market.

Returning triumphant with a $4bn takeover of the business he founded allowed Baker not only to reclaim ownership of his first success story, but to unite it with his second.

To fund the deal, he raised $2bn of debt including an investment from the world’s richest family, the Walton dynasty behind US retailer Walmart, who saw the merit in a globe-straddling ticketing empire with 12 million customers in 70 countries and more than $7bn in annual sales.

As recently as 21 February, a week after the deal closed, Baker played down the danger posed to this new empire by coronavirus.

“As we sit here today it has not [affected our business] because most of the live events where we’ve seen cancellations have mostly been in China and a few in Taiwan and Singapore,” he told business news channel CNBC.

“Right now, it’s been isolated to Asia specifically and mostly China.”

Weeks later, the World Health Organization declared a global pandemic. The day after that, Live Nation and AEG – by far the largest players in events promotion – cancelled all extant music tours. Sports and theatres followed suit.

Essentially, Baker had spent $4bn, half of it other people’s money, on building a business that no longer had any income, nor any certainty about when it could trade again. It was a stroke of bad luck that led Forbes to call the takeover the “worst deal ever”.

Ticketing industry consultant Eric Fuller, who has predicted StubHub will file for bankruptcy protection in the US, said: “Eric Baker was brilliant when he put that [deal] together.

“It was like Steve Jobs coming back from Pixar to rescue Apple and build it into the biggest company on the planet.

“He overpaid but it probably made sense in the context of the worldwide domination that he would have.

“Then you had the bullet that nobody saw coming. Within days, the entire market shuts down.”

Both companies face a financial double-whammy, under pressure to refund angry buyers, with no new income.

“They [StubHub and Viagogo] don’t have the money [to give refunds] and good luck collecting it because the brokers don’t have the money either.”

The CMA’s verdict is yet another fly in the ointment.

The competition regulator has shown plenty of appetite for blocking mergers it feels would hurt consumers in recent years, scuppering Sainsbury’s merger with Asda and JD Sports’ takeover of Footasylum in the past two years.

Fuller believes Viagogo could deal with this scenario by simply shutting down the StubHub brand in the UK, eating up its market share, and dealing with a monopoly investigation if and when it comes.

“It’s the entrepreneur’s credo, live to play another day, maybe get another government,” he said.

“Wait until the CMA has a bigger problem and it’s not fun to do the ticket thing any more.”

Viagogo said it had “worked constructively with the authority to put forward a remedy which it believes addresses any possible concerns and will continue to work closely with the CMA during the phase 2 inquiry.”

In the meantime, campaigners who have long raised concerns about the ethics of for-profit resale and some of Viagogo and StubHub’s business practices are celebrating a small victory.

FanFair Alliance – supported by management and promotion teams behind artists such as Ed Sheeran, PJ Harvey, Arctic Monkeys and Pixies – welcomed the CMA’s intervention on Thursday.

“Viagogo’s predatory marketing practices and business model continue to endanger audiences, and its $4.05bn acquisition of StubHub raises acute competition concerns, particularly in the UK,” said spokesman Adam Webb.

“Even in the midst of the Covid-19 crisis, the thought of such a business monopolising for-profit secondary ticketing remains highly problematic.”

“FanFair Alliance therefore welcomes the CMA’s decision to refer the merger for an in-depth investigation.”

“Over recent years, there have been major steps forward in the UK to eradicate the bad practices of sites like Viagogo and StubHub and those of the large-scale ticket touts who dominate their supply chain.”

“It took a court order and escalated warnings from the CMA to force Viagogo’s compliance with a whole range of consumer protection laws. The company’s treatment of UK audiences has been scandalous.”

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