Payday loans firms to shut as new caps bite -- business live

It may be Remembrance Day but it’s also Singles Day, the biggest online retailing day in China. And it has been bigger than ever, as we report:

Chinese online retailer Alibaba has already taken more than $9.3bn (£5.85bn) in sales on Tuesday as Singles Day, the country’s biggest online retail event, dwarfs other sales bonanzas around the world such as Black Friday in the US or Christmas in the UK.

The live sales figure on Alibaba’s giant screen at its sprawling Hangzhou campus surged past the 50bn yuan ($8.16bn) mark with two hours left to go, as Chinese and overseas shoppers snapped up heavily discounted items online.

Full story here:

Alibaba’s Singles Day sale in China breaks online records

One of the criticisms of the Royal Mail flotation was that there were some hidden jewels within the business, notably its property assets, which were being sold off on the cheap.

And now the business has put up its Nine Elms site in London up for sale which analysts say could raise £662m, a hefty sum which may rekindle the sale controversy. Our full story is here:

Royal Mail may reap £662m from planned sale of London sorting office

The Dow Jones industrial average has nudged a new high at the start of trading on Wall Street.

The Dow touched 17,624.37 in early deals, the latest in a string of records.

Back in the UK, John Lewis has made a decent enough start to the festive trading period.

The high street chain reported that sales rose 5% last week, with turnover rising to £96m in the seven days to Saturday 8 November. More here.

Retailers could use a good Christmas. Figures released overnight showed that sales of autumn clothing have been disappointing, due to the remarkably clement weather.

Warm weather leaves UK retailers with piles of unwanted winter stock

....But, as this chart from the Economist shows, the benefits of the US recovery are not being shared fairly, at all.

Finally, a gobbet of economic news. Just a small one -- American small business optimism rose in October.

More owners said they planned to invest in their companies, and are finding it harder to find qualified applicant for new vacancies, according to the National Federation of Independent Business.

Its Small Business Optimism Index rose by 0.8 points to 96.1, suggesting the US economic recovery continued last month.

It’s an ill wind....The CEO of consumer-credit provider Provident Financial, Peter Crook, expects to benefit from the tight rules on payday loan firms.

He told Bloomberg:

“The FCA’s own research predicts 99 percent of payday lenders will go out of business -- there are over 400 payday loan firms, there will be only four left,”

“That consumer demand to borrow money will still be there and we expect it to migrate to our loans.”

Provident offers loans on longer repayment terms than Wonga, but also imposes interest rates that are massively higher than more orthodox lending.

It’ll lend you £100 for 14 weeks, repayable at £10 per week. An APR of 1,400%!

That APR drops to mere triple digits if you borrow over a longer period...

Back to the payday loan clampdown announced this morning.

The most unscrupulous lenders will be driven out of business by the new caps on interest rates (0.8% per day), reckons Richard Scrivener, consultant at Bovill, the financial services regulatory consultancy.

“Payday lenders that have predicated their business model on the likelihood that a customer won’t actually pay, allowing them to rack up punitive charges, are now going to find the going very tough.”

Scrivener also reckons that this will make space for international subprime lenders:

“Larger players are already adjusting their business models and the space cleared by the demise of some of the fringe players will create an attractive market.”

Over in Greece, the eKathimerini newspaper is reporting that Athens’ government has been handed a list of targets by its troika of lenders.

They say:

Demands include covering a fiscal gap for 2015 that the troika puts at €2.6bn, reducing the number of instalments in which debtors can honour their dues, pushing through a second phase of pension reform and completing an overhaul of the tax administration system.

The troika is also seeking the government’s proposal for an across-the-board wage structure for public sector employees, plans for the restructuring of Greek public utility companies and legislation in view of the liberalization of the natural gas market.

If Greece doesn’t deliver these reforms within four weeks, eurozone finance ministers won’t able to consider whether to provide a precautionary credit line to Greece, at their next Eurogroup meeting on 8th December.

Eurozone expert Yannis Koutsomitis reckons prime minister Antonis Samaras will struggle to get these reforms though parliament, given his narrow majority.

If payday lenders are driven out of business by today’s caps, can more ethical lenders pick up the slack?

The Labour party has warned that regulators must enforce the new cap on payday lending.

Cathy Jamieson MP, Labour’s shadow financial secretary to the Treasury, has called for today’s proposals to be reviewed by the end of 2015.

She also pledged to hit the industry’s profits if Labour win the next election.

“We want to see more done to promote safer and more ethical forms of lending, and that is why a Labour Government would extend the levy on the profits of payday lenders and use the additional money raised to increase the level of Government funding for alternative credit providers such as credit unions.”

Back in the financial markets, and Vodafone has driven the European telecoms sector to its highest level since 2008.

Vodafone’s shares are now up 5.6%, on track for their best day this year, after beating revenue forecasts and nudging its profit estimates for this year.

They’re the biggest riser in the FTSE 100 today.

Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, says Vodafone is making progress in rolling out new services, such as 4G superfast mobile broadband.

However, as flagged up in our opening post, Europe is a sore point....

Hunter says:

The ferocity of competition shows no sign of relenting and there are pockets in Europe such as Germany, Italy and Spain where service revenues continue to decline quite steeply.

Furthermore, net debt has shown an increase given the recent acquisition activity, whilst regulatory overhang and an uncertain European economic outlook provide further causes for concern.

Payday lenders may vanish within year as result of today’s price cap, one economist warned last night....

So how much of a difference will today’s payday lenders cap make?

An interest rate of 0.8% per day works out at £24 interest on a £100 loan, after a month.

Today, Wonga will charge you £37.15 in interest if you borrow £100 for 30 days, so the FCA’s rules will force that down, a little.

And the proposal to prevent anyone having to repay more than double their loan does offer more protection.

But some customers will be repeatedly borrowing, and repaying, money to and from loan companies over the course of a year.

Financial journalist Paul Lewis has calculated that the annual percentage rate under the FCA’s plans is still around 1,200%.

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, says payday lenders are still a major cause of financial angst:

“We hope that these measures [details] will bring an end to the inappropriate lending that we have seen from this industry. However, the FCA will need to be vigilant to ensure that lenders do not simply change their business models to try to evade the rules.

“Calls to National Debtline about payday loans have actually declined slightly from their peak in 2013, but we are still seeing around one in 10 calls relating to this kind of borrowing.

Fiona O’Donnell, Labour MP for East Lothian, agrees that the payday lending cap isn’t tight enough.