The former boss of HSBC’s stern warning about young people and real estate debt
Sir Douglas Flint has first hand experience of mortgage market meltdowns. The former HSBC chairman got the UK lender back on track after the global financial crisis left him faltering in 2008.
The subprime mortgage crash in the United States hit HSBC particularly hard, as it held a portfolio of $ 118 billion in US loans. Now the city’s big man, 66, is warning that households should again be wary of the build-up of giant debts to buy a home as interest rates start to rise.
“Personally, I don’t think this is the time to encourage people to take too much advantage of [borrow too much] on the housing market, ”he told the Mail on Sunday. “Home prices, as a multiple of average income, are at an all time high. ”
Inspired: Sir Douglas Flint took on the role of IP Group after a trip to China
Flint’s intervention comes just days after the Bank of England raised interest rates from a record high 0.1% to 0.25%.
Economists now expect further increases in the bank base rate in 2022 to curb the spike in inflation. And it also comes as the bank relaxes mortgage rules imposed after the financial crisis to prevent borrowers from accepting unaffordable amounts.
The central bank plans to remove a requirement that borrowers can only be approved for a mortgage if their finances show they can afford a three percentage point hike in interest rates. Ending the interest rate rule would help young people borrow more money to move up the housing ladder as house prices soar.
It’s a message that clearly makes Flint extremely nervous after his experiences during the last financial crash. When it hiked rates this month – just weeks before Christmas and as Omicron’s business ramps up – the bank came under fire for surprising financial markets.
“Pour billions of dollars in retirement into science” Flint, who served as chairman of HSBC between 2011 and 2017 after serving as chief financial officer for 15 years, says such unpredictable measures are bad news for the economy.
FLINT, 66: INSPECTOR’S GADGET
Homepage: East Sussex, small apartment in London.
Family: Woman, three grown children, three Labradors.
Favorite movie: Gregory’s daughter, left.
Favourite book : The last magnates of William Cohan.
Last holidays: Cape Town, cut short by the Covid.
Gadget: His kids call him Inspector Gadget because he has so many phone chargers.
Free time: Walk the dogs and play golf.
A day in the life: Meetings with board members, discuss issues. At IP Group and Abrdn, spend time talking to business leaders about what they think.
If interest rates start rising quickly to keep inflation under control – and without a clear and calm path defined by the Bank – those who have taken on large debts to finance the purchase of home could easily dissociate themselves.
“Throughout my time in banking, I’ve learned that if interest rates move, no matter where they end up, if they move in an anticipated pattern, then the economy absorbs that,” says Flint.
‘[But] if they have moved unexpectedly, it results in much more [negative] reaction.’
Was the Bank of England’s surprise interest rate hike in December too low, too late – leaving Britain hostage to the rapid rise in prices in 2022? “If I looked at inflation alone, the trend would be for earlier interest rate hikes,” Flint says.
“But I don’t want to stifle the economy as we see another slowdown,” he adds.
“People cannot go to the office, and it shows an impact in the service sector, restaurants and hospitality. We were hoping for a great December, but we don’t see a great December. ‘
Since leaving HSBC, Flint has served as chairman of asset manager FTSE100 Abrdn and lesser-known IP Group, an FTSE250 company that invests in science and technology start-ups.
IP Group was founded in 2001, initially as an exclusive partnership with the Department of Chemistry at the University of Oxford, enabling the company to invest and develop ideas in viable businesses. He now works with a range of universities around the world.
Flint was inspired to take on this role after joining former Prime Minister Theresa May on a trip to China with a series of British start-ups. So what does IP specialize in? “We don’t do games and gambling and dating,” says Flint.
Flint’s intervention comes just days after the Bank of England raised interest rates from a record high 0.1% to 0.25%
“We are doing bioscience, green transition technology and technology with an important social purpose. IP Group is not just a long term investor with permanent capital because we are a public company; it’s also a partner to help you recruit the right people and provide you with mentorship. The biggest company we’ve ever worked with is Oxford Nanopore, a 15-year investment that finally hit public markets this year. ‘
Oxford Nanopore, which counts IP Group as its largest shareholder, is a genomics company that has helped scientists track the spread of Covid-19. It was listed on the London Stock Exchange in September, with shares surging 40% on the first day of listing. The company has a market value of £ 5.7 billion.
“Pour billions in retirement into science”
Relaxing the rules that prevent pension funds from investing money in science, technology and infrastructure would give savers and the economy a huge boost, says Sir Douglas Flint. The former banker, who is now chairman of the IP Group, an investor specializing in life sciences, points out that the major pension plans in Canada and Australia are already major investors in UK infrastructure, unlike our own pension funds. ‘Why not?’ he says.
“It is really important to Britain that there are organizations – like the IP Group – that promote, protect and develop British science. The opportunity is to tap the huge pool of money that goes into defined contribution pensions [and directing it into these types of assets]’Flint says.
At the heart of the problem is a 0.75 percent cap on annual pension contributions. This makes it difficult for pension funds to invest in more expensive assets like infrastructure because the fees are usually higher. Last month, the government proposed simplifying fees to encourage more pension funds to invest for the long term in growth areas that require patience.
“Oxford Nanopore has been the biggest investment we’ve had in many years, many years,” Flint says emphatically.
“It’s one of the very few actual tech companies to launch in the UK – the majority have gone to Nasdaq or Hong Kong.” Has there ever been a risk that the Oxford Nanopore would float overseas? He says some banks have argued for overseas listing “but the company was very clear in its mind, that having developed its products and its science in the UK, it wanted to come into the UK market”.
The sector is certainly booming. Last week, pharmaceutical company Novartis struck a $ 1.5 billion (£ 1.1 billion) deal to buy Gyroscope Therapeutics, which has a London-listed parent company called Syncona. But Flint’s time at IP Group was not easy. Neil Woodford, the disgraced fund manager whose funds were shut down in 2019 after a series of risky bets, was a major shareholder in IP Group.
“It’s a two-part story,” admits Flint. “Neil Woodford has for a long time been extremely important to science and technology investment in the UK – he has been a major investor. And I think it should not be forgotten. He was a major shareholder of IP Group, but the intersection between what IP Group was investing in and what it was investing in has, in recent years, been incredibly small. After Woodford sold his stake in IP Group in 2019, the Railways pension fund joined the group to become a major shareholder in the company with a 15% stake.
In fact, Flint believes more pension funds should look to invest in UK start-ups, life sciences and infrastructure (see sidebar). “One of the biggest opportunities is for the government to take a very careful look at policy and regulation in the areas where it wants to attract investment – so technology, biosciences, infrastructure,” he said.
“If we are to have global relevance, science is one of the areas where we can truly claim to beat well above our weight and have a long tradition of extraordinary success.”
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