Graeme Wearden 

Mario Draghi defends ECB as anti-austerity protests rock Naples — business live

The European Central Bank president insists that it helped fix the crisis, amid anti-austerity demonstrations in Italy
  
  

Italian riot police use a water cannon to disperse demonstrators during a protest against ECB policy during the meeting of ECB executives in Naples, Italy, 02 October 2014.
Italian riot police using a water cannon to disperse demonstrators during a protest against ECB policy in Naples today. Photograph: CIRO FUSCO/EPA

OK, that’s all for tonight.

Our summary of today’s ECB press conference is here:

ECB press conference - what we learned

Coverage of the protests in Naples starts here:

Anti-austerity protests in Naples as ECB governing council meets

And our round-up of the heavy losses in Europe is here:

European stock markets suffer heavy falls

Back tomorrow. G’nite! GW

Sports Direct boosts stake in Debenhams

One final splash of news, retail billionaire Mike Ashley has increased his stake in Debenhams.

Ashley’s Sports Direct told the City tonight that it has bought more than 56 million Debenhams shares, equal to a 4.6% stake. Added to the ‘put option’ taken out earlier this year (the right to buy shares at a certain value), and Ashley controls 11.2% of Debs.

So what’s he up to? With Ashley, you can never be sure if he’s playing the market or pulling off something strategic.

Officially, the line is that:

Sports Direct is already working together with Debenhams and looks forward to building this relationship.

Over in Buenos Aires, the main stock market has tumbled almost 9% following the resignation of Argentina’s central bank governor, Juan Carlos Fábrega, last night.

That photo of Mario Draghi and his fellow governing council members in Naples has prompted some debate on Twitter, along the lines of ‘where’s the diversity?’:

European stock markets suffer heavy falls

Ouch. Europe’s major stock markets have just closed with heavy losses across the board, with the FTSE 100 tumbling by over 100 points.

Disappointment that the ECB didn’t sound bolder today has mixed with ongoing worries over the protests in Hong Kong, and geopolitical troubles in the Middle East.

Fresh falls on Wall Street also hit sentiment in Europe.

The FTSE 100 index of major blue-chip companies shed 111 points to 6,446, down 1.69%. That’s its lowest level since early February, so almost an eight-month low.

The Italian MIB led the fallers, shedding almost 4% in a nervy selloff in Milan.

Traders appear disappointed that Mario Draghi didn’t give more details about the ABS stimulus programme; does this mean it won’t be big enough to make a difference?

Here’s how the markets closed a few minutes ago:

Alastair McCaig, market analyst at IG, says geopolitical fears and the ECB have driven shares down:

Commodity stocks dependent on Asian demand have suffered as traders continue to view images of unrest on the streets of Hong Kong. Fears that this could escalate have instigated a selloff, with investors looking to reduce their risk exposure. Following the latest ECB press conference and Mario Draghi’s Q&A session European equity markets have shown how uninspired they are, falling across the board.

Spanish and Italian government bonds have also weakened in value, pushing up the interest rates on the debt.

Ranko Berich, Head of Market Analysis at Monex Europe, blames the European Central Bank:

Mario Draghi gave an extraordinarily non-committal performance at the latest ECB press conference, avoiding any firm indication of the size of the its purchase programme.

Eurozone sovereign debt markets tell a tale of disappointment, with prices falling and yields rising, suggesting that markets had priced in hopes of sovereign debt purchases.

Lagarde warns that mediocre recovery simply isn't good enough

Over in Washington, Christine Lagarde, the managing director of the IMF, has warned that the global economy risked having mediocre growth for some time to come.

Lagarde also announced that her Washington-based organisation would trim its growth forecasts when it meets next week.

Our economics editor Larry Elliott writes:

Ahead of the Fund’s annual meeting, Lagarde urged action - including an easing of austerity, job creation programmes and higher spending on infrastructure - to boost growth.

“Our main job now is to help the global economy shift gears and overcome what has been so far a disappointing recovery: one that is brittle, uneven, and beset by risks”, Lagarde said in a speech.

The Fund’s half-yearly world economic outlook in April predicted growth of 3.6% in 2014, rising to 3.9% in 2015, but Lagarde said: “Overall, the global economy is weaker than we had envisaged even six months ago. Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down.

“Yes, there is a recovery but as we all know—and can all feel it—the level of growth and jobs is simply not good enough.”

Updated

JP Morgan Asset Management: Give Draghi a break

Are markets simply being too impatient, and making unacceptable demands on the European Central Bank?

Nick Gartside, international CIO for Fixed Income at J.P. Morgan Asset Management, reckons investors should cut Draghi and co some slack:

What investors take away from today’s announcement is that markets need to give the ECB a little bit of a break. After all, we’ve had big measures in June, big measures in September. It’s imminently realistic for markets to give this some time to see how things will work in practice.

Draghi was very explicit on one key performance indicator — the evolution of inflation expectations – which he was clear to say will be monitored over years (not months). Importantly he also repeated the willingness to engage in ‘other measures’ available, which to us is a significant signal of the ECB’s commitment to utilise the entire toolkit as/if it becomes necessary.

Berenberg: Draghi gave France a stark warning

Analysts at Berenberg bank say Mario Draghi disappointed some investors today, even though he gave more details about the plan to buy bundles of debt from eurozone banks.

In a note to clients, Christian Schulz say:

As expected, the ECB put flesh to the bones of the asset purchase programmes pre-announced at the September meeting. However, it did not deliver a single big number and did not go beyond these announcements.

That may come as a disappointment to some observers. In particular, the language on purchases of sovereign bonds did not change.

Schulz also reckon France should be worried by Draghi’s comments about ‘delivering on commitments’:

Draghi gave a stark warning to France to live up to the fiscal adjustment commitments it made in previous budget rounds.

Since the ECB is involved in reviewing the budgets as part of the European semester which starts in mid-October, France could be headed for stiff headwinds, up to financial penalties being imposed by the EU Commission. Since these could only be averted by a qualified majority of the member states, France faces an uphill battle and will probably have to make significant concessions. If not on fiscal targets, than on structural reforms.

European stock markets have suffered deeper losses, following the ECB’s failure to say how big its asset purchase scheme will be.

The FTSE 100 is down 57 points, or 0.88%, to 6499, and there’s a serious selloff underway in Milan where the Italian MIB has shed 3.5%.

But while the ECB was meeting in Naples’ Capodimonte palace, this was the scene outside:

ECB press conference - what we learned

If you want to seriously annoy a top policymaker, tell them people feel they’re doing a bad job.

Mario Draghi’s most animated moment in today’s press conference (coverage starts here) came when he was asked to comment on the protests that have been taking place in Naples today.

His passionate defence of the ECB’s role in the crisis – look at our interest rate cuts, our liquidity measures – suggests that the sight of his fellow Italians holding banners declaring “Block the ECB” and “Job insecurity, poverty, unemployment, speculation. Free us from the ECB!” may have hurt him.

Draghi urged critics to remember the situation in 2011 and 2012, when “the financial system seemed on the verge of collapsing”.

As the ECB president put it:

I find that this description of the ECB as the guilty actor needs to be corrected.

2) Draghi also said that the rise of euroscepticism in Europe is understandable given economic conditions:

“It’s very understandable that people are Eurosceptical because things are not going well...

In this part of the world (southern Europe) things are not going well because you have pervasive unemployment and you have very weak economic activity with ... in some countries, with a recession that seems to never end.”

While in Northern Europe, people are unhappy because they feel they are paying for everyone else, he added.

But given current conditions, will either end of Europe feel happier soon?

3) The meat of today’s news is that the ECB will start buying covered bonds from banks this month, and launch its asset-purchase scheme before the end of the year.

Draghi insisted that this QE-style programme, which will run for two years, will help to push inflation towards target.

“As all our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to our aim.”

4) But the ECB has also decided that it will only buy junk-rated bonds from Greek and Cypriot banks if their national governments are in a ‘programme’ with the EU.

That could be awkward for Athens, which has vowed not to take a third bailout.

And Draghi also refused to say how large the ABS programme will be, disappointing those who had expected a big announcement.

5) Several time during the press conference, Draghi insisted that European governments must implement structural reforms and stick to the EU’s deficit rules. He declared that France needs to deliver on its pledges; just a day after Paris announced a budget that won’t bring its deficit under 3% until 2017.

And he also denied that there is a ‘grand bargain’ between the ECB and national governments.

6) The ECB appears to be more concerned about the weak inflation levels, after seeing CPI hit just 0.3% last month. Draghi flagged up that low energy prices and a high euro cannot be blamed any longer.

Updated

And that’s the end of the press conference. No major shockers today. Key points to follow.....

The details of the new stimulus scheme, based on ABS and covered bond purchases, are coming out now....

Draghi: Don't blame the ECB for Italy's woes

Q: What message does the ECB have to the protestors on the streets of Naples?

Draghi launches a pretty impassioned defence of the European Central Bank, and his role in the crisis.

We understand the reasons behind the protests, he says, and “frankly” they have to do with the weak situation of this country, and its weak economy.

He then insists that the idea that the ECB is somehow guilty, and is the origin of the situation, needs to be correct.

He tells Italians to:

Go back and ask yourself how were you two and a half, 3 years ago. The financial system seems on the verge of collapsing.

We have slashed interest rates until they can’t be cut any more. We are charging banks negative interest rates. We have injected large amounts of liquidity into the system.

I find that this description of the ECB as the guilty actor needs to be corrected.

Is Mario feeling a little unloved in his homeland?

Q: Is the ECB worried about the decline in core inflation last month?

We are closely monitoring these developments, Draghi replies.

For a while, the drop in energy prices was the main factor behind weak inflation.

Then it was the strong appreciation of the exchange rate.

Now, more recently, it can’t be blamed just on oil prices, food prices, and the exchange rate. There is clearly another level - partly based on unemployment.

The longer we stay in a low-inflation environment, the longer that cyclical factor influences the inflation rate.

Q: What does Mario Draghi think about France’s decision to not hit its deficit target until 2017? (a decision support by Italy’s PM today)?

Draghi replies that the ECB, the EU, all major players in Europe, all have “an enormous interest” in France returning to growth and lowering unemployment.

We do trust the government to take all the necessary reforms.... starting with a forceful implementation of the responsibility pact.

We’ve been talking about these measure for a long time - the time for implementation is now.

Reporters are trying to get more details out of Mario Draghi about the ABS programme.

He says that the “ground work” for having a sizeable impact is there, along with other programmes such as the TLTRO programme of cheap loans launched recently.

Draghi: Rise of euroscepticism is understandable

Q: What does Mario Draghi think about the rise of eurosceptic parties in Europe?

The ECB president replies that it is “understandable that people are eurosceptic because things are not going well, in opposite directions”

Here in Italy...you have high unemployment and a weak economy. In other countries, there are recessions that never seem to end.

In the other part of Europe, they feel that they are paying for everyone else. That’s another reason to not being happy.

He argues, though, that you can’t blame the eurozone.

Countrie that need to do structural reforms, consolidate their finances, would have to do it regardless of whether they are in the euro or not.

Q: Can you clarify the point about only buying junk-rated asset-backed securities from Greek banks if Greece government is in a programme with the EU?

There must be a programme. No programme, no purchases, Draghi replies.

The euro has gained in value during the press conference, up around 0.3% against the US dollar at $1.266.

Perhaps investors had expected more action today (there’s not been any fireworks yet)

Q: Is there a policy target for the value of the euro, and how can Mario Draghi explain to people in the shops and at the pump that higher inflation would be good for them?

Daghi insists that there is no explicit target for the euro (which has fallen in recent weeks).

On the merits of inflation, yes, the low inflation rate has meant a boost in real incomes.

Draghi says there are signs of a slight fall in slack in the labour market (although from a high level).

And the ECB hopes that “when we see some price pressure back in economy we’d also, at the same time, we’d like to see some strengthening in the economy”.

Updated

What kind of structural reforms are needed?

Mario Draghi takes a swipe at red tape, citing the example of someone who wants to open a new shop but is forced to apply for various permissions.

By the time he gets these permissions, he has been overwhelmed by taxes, Draghi bemoans.

Draghi: No grand bargain over reforms

Q: Do Mario Draghi’s comments about governments needing to do more mean he is running out of instruments?

There’s no grand bargain here, Draghi insists.

The point is that our measure only work if other things happen too.

We need demand policies, and we need structural reforms.

There is no bargain here. Each actor has its role to perform

Q: By how much does the ECB want to expand its balance sheet (it has cited 2012 levels, but it varied during that year):

Mario Draghi says he understands why we want a precise number. But he’s not going to provide one! Our mandate is to get inflation back to just below 2% - that’s how we’ll measure success, he says.

That’s one question ducked

Next question, does the ECB think that inflation expectations are still well-anchored?

We don’t use one measure, Draghi replies, we use a range.

And yes, our expectations have gone down, if you use the five-year vs five-year inflation expectations measure (this is the measure he cited in his Jackson Hole speech in August)

Inflation expectations have worsened, and risks have increased, Draghi says.

That’s why we are launching the ABS and covered bond purchase programme, to underpin inflation expectations.

ECB would buy Greek and Cypriot securities, with caveats

First question: can we have more details about the ABS programme please, and will it allow the ECB to bundles of Greek and Cypriot bank loans with Junk ratings?

Draghi: You’ll get full details after the press conference. It’s hard to give a precise figure because the programme is tied up with other ECB programmes (such as the new TLTRO loan offer).

In total, all our efforts will have a sizeable impact on the balance sheet, he insists.

Draghi points out that the ECB has been accepting asset-backed securities (bundles of loans) for a while as collateral. But some structured ABSs that are acceptable as collateral will not be suitable for outright purchase, he says.

And on Greek and Cyprus junk bonds... they could be included, but with ‘caveats’. These ABS’s need to be adjusted, so that the assets bought there will be risk-equivalent to assets bought elsewhere.

And, those countries would still need to have a programme with the EU.

So, the ECB wouldn’t accept assets from Greece and Cyprus if they weren’t in a bailout programme.....

ECB Q&A session begins.

Mario Draghi is now taking questions (that was a quicker statement than usual).

European countries must not let progress unravel, and should stick to the responsibility pact, says Draghi.

That’s a signal to France, I feel, which isn’t planning to hit its 3% deficit target until 2017, several years late.

Updated

Credit supply growth also remains weak, says the ECB president.

Not much cheer in today’s statement!

Draghi also gives politicians a nudge, saying that insufficient reform progress is another downward risk.

The ECB appears to have changed its language on inflation expectations....

Recent data confirms that the growth momentum is weakening, says Draghi.

On economic conditions, Draghi warns that risks remain to the downside. Inflation is subdued (it hit a five-year low of just 0.3% last month), and unemployment is still too high (at 11.5% in August)

Mario Draghi says the ECB governing council unanimous on the use of additional unconventional measures if necessary -- a signal that a full-blown sovereign bond-buying QE programme is still possible.

ECB announces details of new bond-buying programme

Important -- we are getting details of the ECB’s new QE-style stimulus programme (which was agreed in principle last month)

The covered bond operation will start in October, Draghi says.

The ABS will begin in the fourth quarter of this year.

And these programmes will run for two years, and substantially increase the ECB’s balance sheet.

These programmes will support our monetary policy transmission, support the broader econony, and have ‘positive spillovers’ to other markets, he adds.

And they will help get inflation back to our long-term target, Draghi says.

Mario Draghi begins reading his statement -- confirming that the ECB left interest rates unchanged.

The ECB has also agreed on the key operational details of its new asset purchase programme, and covered bonds (announced last month).

ECB press conference begins

The ECB press conference is underway, after that slight delay.... (livefeed here)

Mario Draghi’s late!

Another photo from Naples -- an anti-austerity protester dressed as Saint Gennaro (Januarius, Naples’ saint patron) taking part in a demonstration on the sidelines of the Governing Council of the European Central Bank meeting.

Watch the ECB press conference here

OK, it’s nearly time for the European Central Bank’s press conference from Naples.

Mario Draghi is expected to outline the asset purchase scheme announced (despite German opposition) last month.

The press conference will be streamed on the ECB’s web site (right-click to open in new tab).

I’ll try to cover the key points, and instant reaction, here.

Reuters reports that the Italian police say there were around 600 protests on the streets of Naples, fewer than the demonstrators estimated earlier (scroll back to 12.11pm BST for our report):

Demonstrators face off riot police in Naples as ECB meets

Hundreds of protesters faced off riot police on Thursday outside the Capodimonte palace in the southern Italian city of Naples where the European Central Bank is holding one of its regular rate-setting meetings.

Television pictures showed police in riot gear barring the protesters from the grounds of the 18th century former royal palace, where ECB President Mario Draghi will hold a news conference after the meeting.

Demonstrators chanted slogans and marched behind a banner reading “Job insecurity, poverty, unemployment, speculation. Free us from the ECB!” and speakers attacked spending cuts, job losses and austerity policies they said were imposed by Brussels.

Helicopters flew above the crowd which police officials estimated at around 600. There were some scuffles and masked demonstrators threw firecrackers and smokebombs while police responded with teargas and a water cannon.

Italy, in its third recession in six years, is going through a slump which the government says has now led to an economic contraction deeper than the Great Depression of 1929 with the south of Italy particularly severely affected.

The ECB has cut its main interest rate close to zero and is planning a major asset-buying programme to stimulate lending to the euro zone economy. Draghi has also called on governments to do their part to boost confidence by making their economies more productive and competitive

Updated

Eurozone crisis heating up again?

Two or three years ago, the anti-austerity protests that are gripping Naples today were a regular feature of the eurozone landscape.

They’ve been pretty rare in 2014, as the euro crisis eased.

But while the single currency looks more secure, Europe’s economy remains in a bad way, with unemployment near a record high and little growth. Italy, for example, is back in recession.

These protest in Naples are a reminder to politicians and central bankers that Europe’s problems, and public anger over the events of the last few years, haven’t abated.

Here’s a snap of the ECB governing council meeting in Naples, where they voted to leave rates unchanged:

ECB leaves interest rates unchanged

Away from the protests, the ECB’s governing council has voted to leave interest rates unchanged. That’s not a surprise at all.

This means the headline cost of borrowing remains at a record low of just 0.05%, while banks are charged -0.2% to leave money at the ECB.

Next up, Mario Draghi’s press conference in just under 45 minutes...

Twitter coverage:

Today’s demonstrators are using the #blockbce hashtag to co-ordinate on Twitter

This man carried a placard declaring: ‘#Block BCE (ECB) We’ll be inflexible’, at today’s protests in Naples.

And here’s a demonstrator wearing a mask during todays’ protest against the ECB.

Here’s another photo from Naples, of an Italian policeman with a camera on his uniform at today’s protests:

Updated

The demonstrators in Naples were ready for Mario Draghi and the governing council, as this poster shows:

Watch a live feed here

There’s a live video-feed showing the protests in Naples here (right-click to open in new tab)

Updated

Anti-austerity protests in Naples as ECB governing council meets

Over in Naples, thousands of demonstrators are marching as the European Central Bank holds its monthly monetary policy meeting.

From Italy, my colleague Lizzy Davies reports:

Mario Draghi may not quite catch the cries from inside the splendid confines of Naples’s Capodimonte museum, but the anti-austerity protesters massing today in Italy’s third-biggest city will do their best to make their voices heard nonetheless.

The protesters in Naples have declared that a total of 4,000 people are marching, according to news agency Ansa.

And there are photos of tear gas being used:

Ansa quotes them as saying at the rally:

“Today all Italians should stage a protest as the start of a season of struggle. All Europeans must say: basta[enough].”

They reportedly urged the protesters to “unite and take back our dignity.”

Some of them carrying a banner reading “precariousness poverty unemployment [property] speculation. Let’s free ourselves from the ECB”.

Other banners carried messages ranging from “More houses for everyone, but bankers in the cellar” and “No ECB, no austerity” to “Block the ECB because we decide our governments’ spending”.

One protest leader has rejected the idea today’s demonstration could turn violent.

The man, identified only as “Mauro from the 081 Collective” told the Italian news agency Ansa that:

“A huge climate of fear has been built up around this protest. We’ve been obliged in recent days to explain that it is the young people of this city who are protesting, young people who want to have a future.”

But as ever the composition of the rally was mixed, from students and the jobless to mothers and “ordinary citizens”, reported Ansa, who are there to highlight their economic woes.

(Let’s remember that Italy found out this week that youth unemployment hit a fresh high of in 44.2% in August, even if the overall joblessness rate decreased slightly to 12.3%.)

While Wonga was dominating our attention, the Bank of England was revealing that it wants more controls to help steer the UK’s housing market.

Its Financial Policy Committee has asked chancellor George Osborne for the legal power to cap the value of loans to homeowners related to the value of a property, and borrowers’ income.

The FPC also concluded, in its latest report, that housing does not represent a “material risk” to financial stability in the UK.

Full story: Bank of England asks for powers to intervene in housing market

Summary: Wonga forced to write off loans

MPs have called for Wonga to be hauled before parliament for questioning, after the Financial Services Authority forced the payday lender to make major changes to its service and stop lending money to people who can’t afford to pay it back.

Around 330,000 Wonga customers who are at least 30 days in arrears are having their loans wiped off; a total of £220m of outstanding borrowing.

Another 45,000 who are less than a month in arrears will not have to pay any more interest. Full coverage starts here.

John Mann MP has told the Guardian that Wonga should be recalled to parliament to explain how so much money was loaned to so many people.

And the Labour Party is also pushing for a levy on the payday industry to fund credit unions.

The FCA declared that Wonga was not taking adequate steps to assess whether customers could repay their loans.

Clive Adamson, the FCA’s director of supervision, said:

“We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations.

This should put the rest of the industry on notice – they need to lend affordably and responsibly.”

Here’s the FCA’s statement.

Wonga has agreed to “strengthen” its lending criteria, and make serious. Here’s Wonga’s full statement.

Wonga’s chairman, Andy Haste, has admitted there is “real and urgent” need for change at the company:

There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.”

A majority of readers in our poll think Wonga is doing the right thing.

Consumer group uSwitch has warned that the shake-up will not fix the need for short-term lending from people who can’t borrow from the banks.

And expert Carl Packman points out that Wonga’s much-vaunted algorithms failed to prevent poor lending.

Full reaction starts here.

Updated

Labour: payday lenders should pay special levy

Cathy Jamieson MP, Labour’s Shadow Financial Secretary to the Treasury, has welcomed the FCA’s move to “drive up standards” in the payday loans industry.

But she also argues that payday lenders should be hit with a levy, with the proceeds used to fund credit unions:

“It is right that Wonga, in agreement with the FCA, has taken action to help customers affected and strengthened their lending and affordability criteria.

“We believe that more should be done. A Labour Government will extend the levy on the profits of payday lenders and use the additional money to double the level of Government funding for credit unions.”

MPs on the Business, Innovation and Skills committee did quiz Wonga last November, as part of an inquiry into the payday loan sector.

Wonga defended itself robustly at the time. Chief operating officer, Niall Wass, declared in an interview that:

“I am not sitting here today saying that everything we do is perfect; what we are trying to do is use great technology to give a really fair, transparent service to customers.”

John Mann MP: Wonga must be recalled to parliament

John Mann MP, another member of the Treasury Committee, has declared that Wonga should be recalled to parliament to explain what went so badly wrong.

Speaking to my colleague Rupert Neate, Mann said Wonga has used “underhand tactics” to lend to these 330,000 people whose debts are now being wiped away.

Mann also suggested that action should be taken against Wonga’s founder and former CEO, Errol Damelin.

Updated

Carl Packman: Payday loan firms have neglected affordability tests

Carl Packman, who has written two books on the payday lending industry, points out that Wonga’s much-vaunted software failed to live up to its claims.

He says:

“Wonga has always been able to hide behind the excuse that it is an innovative tech company before its a payday lender, but they are admitting today that their “algorithm” hasn’t stopped the company from lending to those people who are least able to afford high cost credit.

“The problem with payday lenders is that for so long they have been motivated to lend money without carrying out affordability assessments because this is what draws a profit. Not carrying out credit checks saves the firms money and if borrowers are struggling to pay off their loans then lenders can cash in on rollover options.

“I’m glad the FCA are working with Wonga to improve their affordability assessments. We now have to work on improving the ethical alternatives such as credit unions and community banks who will outcompete the payday lending industry out of business.”

uSwitch: More needs to be done

David Mann, head of Money at uSwitch.com, says Wonga’s new affordability rules are “a great victory for consumers”, but they don’t fix the wider issue of why customers were put in this vulnerable position in the first place.

“The new affordability criteria put in place by Wonga goes some way to address these questions as payday lenders need to have the same controls in place as banks and building societies before issuing credit.

“Today’s news doesn’t solve the escalating need for short term loans. Those most in need of money, often with poor credit ratings, have been turned away from the banks and left to feel they have no other option. There is a bigger question that needs to be asked around the growing need for short term credit.”

Updated

Labour MP Pat McFadden has told the BBC that Wonga could be called to the Treasury Committee (he’s a member) to explain today’s changes.

More reaction to Wonga's debt write-offs

Poll: Is this a good thing?

Is Wonga doing the right thing, or is it rewarding people for reckless borrowing? Vote here:

Poll: is Wonga right to let people off their loans?

Updated

It would be a mistake to think that Wonga are doing this out of the goodness of their heart.

It’s clear that these loans aren’t compatible with the new lending criteria agreed with the FCA, and therefore shouldn’t have been made in the first place.

Wonga’s own statement declares that this new lending criteria meant it will accept “significantly fewer loan applications”, and that some existing customers would no longer be able to use the service.

Wonga sources are briefing that the actual cost of writing off all these loans is £35m.

That’s almost double the £18.8m wiped out in “remediation costs” after it sent fake lawyers’ letters to customers in arrears.

And it’s nearly as large as the £39m of pre-tax profits it reported on Tuesday.

Updated

The total value of the debt being written off is £220m, or around £667 for each of the 330,000 Wonga customers whose debts are being written off.

Of course, we don’t know how much they initially borrowed....

Updated

FCA statement on Wonga

Here’s the full statement from the Financial Conduct Authority, outlining how Wonga has now entered a voluntary requirement (VREQ).

When it took over regulation of consumer credit in April of this year, the FCA requested information about the volume of Wonga’s relending rates.

The information received suggested that Wonga was not taking adequate steps to assess customers’ ability to meet repayments in a sustainable manner.

Thus the decision to write off 330,000 customers’ debts, and wipe away the interest on another 45,000 loans.

Updated

Another staggering fact is that there are a third of a million people in the UK who have taken out loans with Wonga that they simply cannot pay back.

No wonder the FCA is taking action....

The BBC’s Kamal Ahmed reports that Wonga is writing off £220m of debt (which it now admits it shouldn’t have loaned in the first place).

FCA: Wonga's debt write-offs are a signal to the industry

Wonga’s shock decision to write off the debts of 330,00 customers is part of a deal with the Financial Conduct Authority, designed to clean up the payday lending industry.

Clive Adamson, director of supervision, has declared:

“We are determined to drive up standards in the consumer credit market and it is disappointing that some firms still have a way to go to meet our expectations. This should put the rest of the industry on notice – they need to lend affordably and responsibly.

“It is absolutely right that Wonga’s new management team has acted quickly to put things right for their customers after these issues were raised by the FCA.”

Wonga to write off debts of 330,000 customers

Big news breaking in the UK. Wonga, the payday lender, has just announced that it is writing off all outstanding debt on 330,000 customers who are at least 30 days late in their repayments.

And a further 45,000 customers who are in arrears of up to 29 days will be asked to repay their debt without interest and charges. They’ll also be allowed to repay their debt over an extended period of four months.

The move is part of a major customer forbearance programme, which will also see the company tighten up its lending practices. It appears to have been forced by the Financial Conduct Authority, the City regulator.

The 375,000 people whose debts, or interest, are being written off not qualify for a loan under Wonga’s new rules.

That’s effectively an admission that the company has been lending money to people who weren’t in a position to pay it back -- something campaigners have been warning about for months.

Wonga’s new chairman, Andy Haste, admitted that Wonga’s lending practices simply weren’t good enough. He says:

“It’s clear to me that the need for change at Wonga is real and urgent. Our regulator is determined to improve standards in consumer credit and I share that determination. There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.

Here’s the statement:

Wonga announces major customer forbearance programme and strengthens affordability checks to ensure sustainable lending

Draghi: ECB's challenges are like the Labours of Hercules

Mario Draghi set the scene for today’s ECB meeting in Naples last night, by declaring that the central bank faces a ‘Herculean task’.

The ECB president told a dinner that reviving growth and fighting unemployment was like fighting the many-headed Hydra.

Draghi declared (via the WSJ):

“As policymakers in Italy and in the euro area, it often feels like we face a Herculean task to revive growth and bring down unemployment.

“And just like Hercules confronting the Hydra, it sometimes seems as though just as we defeat one challenge, such as the sovereign debt crisis, two new challenges spring up, such as low inflation and a weak recovery.”

Hercules’s various Labours took 12 years; the ECB’s challenge is to avoid Europe’s lowflation-lowgrowth malaise lasting as long.

Draghi also told last night’s dinner that monetary policy alone cannot fix the eurozone’s problems. Governments must do more to boost investment, he said:

Monetary policy can play a role here by lowering the cost of capital. But investment also depends on certainty over public finances. And lower interest rates will not encourage firms to borrow to invest if their returns are reduced by rising taxes, or eaten away by hidden costs linked to unnecessary regulations. Thus, fiscal and structural policies must also do their part.

Moscovici vows to enforce budget rules on France

Over in Brussels, former French finance minister Pierre Moscovici is being grilled by the European Parliament over his appointment as a new economy commissioner.

Moscovici is promising that he will apply the EU’s budget rules to his home country -- which yesterday declared that it would not hit its deficit target until 2017, two years late.

MEPs are also giving Moscovici a rough ride.

European markets fall again ahead of ECB meeting

Europe’s stock markets have begun where they left off yesterday, with losses across the board.

It’s a fairly subdued selloff, with the FTSE 100 dropping another 26 points or 0.4% to 6529, having hit a five-month low last night.

Those geopolitical and economic fears (see opening post) also knocked another 0.5% off Germany’s DAX in early trading.

Here’s the situation:

And here’s a flavour of the mood on the trading floors:

City round-up

A quick-round up of the other early morning news.

Pizza supplier Domino’s has reported strong sales again, with underlying turnover in the last 13 weeks jumping by 12.9%. Its mobile app, and a new website, are luring customers in. However, Germany remains a problem -- sales are down 9.9%. Investors are pleased - shares have jumped 2% in early trading.

Tui Travel has reassured the City that it’s on track to hit its profit targets, with average prices for summer holidays in 2015 up on last summer. Most of its holidays have now been sold, with strong demand in the UK and Germany.

However, TUI is also booking a £27m provision against loans made to its “joint venture entity” in the Russia-Ukraine region. Shares are up 0.5% this morning.

Fashion brand Ted Baker has reported a 24% jump in pre-tax profits, with its e-commerce sales leaping 48.9%. Shares are down 0.6%.

Updated

Virgin Money announces float plans

It’s been a good morning for staff at Virgin Money, one of the UK’s new ‘challenger’ retail banks.

Virgin Money announced that it plans to raise £150m by floating on the stock market. And each employee will receive £1000 of free shares too.

Virgin Money bulked itself up by buying Northern Rock’s ‘good’ assets after the financial crisis. The plan to float means the UK taxpayer will receive £50m, taking the total paid by Virgin to £1.02bn.

The float comes seven years after Northern Rock was driven to near collapse by the credit crunch.

Sir David Clementi, chairman of Virgin Money, says:

“I am pleased we have reached the point where Virgin Money is ready to start life as a listed company. We have built a safe, sound and secure bank supported by a strong Board.

The Company has an extremely positive future and I am delighted the business is in such a good position.”

Back in 2011, we calculated that the taxpayer had made a loss of around £400m on the Northern Rock rescue (having injected around £1.4bn when the crisis erupted).

But it’s a complicated issue -- while Virgin got the ‘good’ assets, the rest of Northern Rock was packaged up with mortgages from Bradford & Bingley, which was also stricken by the credit crunch. That bad bank, supported by £28bn of government loans, will wind down those assets over decades as people pay off their mortgages.

The Agenda: ECB meeting looms over the markets

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and finance.

There’s a real sense of nervousness in the financial markets today, after a heavy selloff on Wall Street last night.

With the FTSE 100 having hit a six-month low yesterday, investors are wondering if the market may, finally, be running out of steam.

Geopolitical risks, disappointing economic data, and the looming end of America’s huge bond-buying programme appear to be weighing on the markets.

Asian stock markets have followed Wall Street’s lead, and dropped overnight. And we’re expecting Europe’s main stock markets to dip a little further this morning.

As Michael Hewson of CMC Markets puts it:

Europe gets set for lower open this morning after a sharp sell-off on Wall Street overnight exacerbated fears that we could be about to embark on the long feared global equity market sell-off, after a five year bull market rally.

With the Federal Reserve set to end its QE program this month and economic data deteriorating globally, particularly in Europe the concern is whatever the ECB [European Central Bank] does won’t be anywhere near enough to fill the gap left by the US central bank, against an uncertain geopolitical back drop and a slowing world economy.

The ECB is the main show in town today, as it meets for its monthly policy meeting. And for a change, the governing council is meeting in Naples.

It is expected to announce the details of its new QE-style asset asset purchase scheme, its new weapon to fight deflation. And with the inflation rate hitting just 0.3% last month, Mario Draghi and colleagues should be feeling the pressure.....

The ECB’s press conference is at 1.30pm BST.

Also coming up today...

  • The Bank of England’s financial policy committee is publishing a statement at 9.30am.
  • Data firm Markit will release its report on how the UK’s construction sector fared in September, also at 9.30am.
  • And the IMF chief, Christine Lagarde, is giving a speech this afternoon, at 4pm BST.

And we’ll also be watching Greece, after the prime minister announced a confidence vote will be held next week to allay (he hopes!) fears of an early election

While in the City, Virgin Money has confirmed plans to float on the stock market. More on that shortly....

Updated

 

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