Bank of England extends QE to overseas firms

Daily Mail owner DMGT, US firms Apple, Verizon and AT&T among companies on Bank’s bond-buying list

The Bank of England is to buy £10bn of bonds issued by private companies, including Apple and other overseas corporations, as it begins a dramatic expansion of its quantitative easing programme.

But the Bank has been accused of handing taxpayer cash to foreign corporations with little connection to the UK, which may simply hand the money back to shareholders.

Until now, QE, designed to boost the economy by lowering interest rates, has focused on purchasing and, in effect, cancelling UK government bonds, known as gilts. The Bank said earlier this year, however, that it would expand its asset purchases to £10bn of bonds issued by private companies, as long as they were UK based, or overseas corporations with a major UK presence which were benefiting the British economy.

When the list of eligible companies was published on Monday, one major bond dealer said he was astonished at the names included.

Verizon, a US cell phone network, is on the list, as is another big US telecoms company, AT&T, despite both firms arguably having minimal operations in the UK.

While most bonds are issued by companies so they can invest in their businesses, some US corporations have recently used the bond markets to raise cash simply to hand to shareholders as dividends, or to use it to buy shares in their own company, thus pushing up the share price artificially.

“A lot of US corporates have been issuing bonds to finance share buybacks and dividends to shareholders. There can be absolutely no guarantee that the funds raised will be used to invest in the UK,” one senior bond dealer said, on condition of anonymity.

The Bank has said it will only buy the bonds of companies “making a material contribution to the UK economy”.

It defines these companies as those with “significant employment in the UK or with their headquarters in the UK ... but the Bank will also consider whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.”

It said its asset purchase facility corporate bond purchase scheme (CBPS) would stimulate the economy by lowering the yields on corporate bonds, “thereby reducing the cost of borrowing for companies; by triggering portfolio rebalancing into riskier assets by sellers of assets; and by stimulating new issuance of corporate bonds”.

Bonds with a face value of about £110bn will be eligible for buying by the Bank, although the central bank is only planning to buy £10bn of these bonds.

However, the senior trader said: “I was incensed when I saw the list and how far it appears to deviate from the aim of the scheme. There are huge inconsistencies in the names included. Apple is on the list, as is Wal-Mart, but at least they own Asda. Manchester airport is on the list, but Gatwick airport is not.”

“If a company name is on that list, it will bring it substantial benefits when issuing new bonds and securing new funding,” he added.

The trader accused other investment banks of gaming the system to their own benefit. “My motivation in trying to expose this is that I am a British taxpayer and I am not happy about seeing the public purse being used to the advantage of certain investment banks.”

The Bank of England declined to comment.

List of companies eligible for BoE bond-buying scheme

Amgen

Anglian Water

AP Mollier-Maersk

Apple

AT&T

BAE Systems

BASF

BAT International

BG Energy Capital

Birmingham Airport

BMW

Bouygues

BP

BT

Cargill

Centrica

CIE De Saint-Gobain

Company Group

Daily Mail & General Trust

Daimler

Deutsche Bahn

Deutsche Telekom

Dong Energy

E.ON

Eastern Power

EE

Electricite De France (EDF)

Electricity North West

Engie

Eversholt

Experian

FirstGroup

GE

GSK

Great Rolling Stock

Hammerson

Hutchison Whampoa

IBM

Imperial Brands

Intercontinental Hotels

Linde

London Power

LVMH

Manchester Airports Group

M&S

McDonald’s

Mondelez

Motability Operations

National Express

National Grid

Nestlé

Next

Northern Ireland Electricity

Northern Powergrid

Northumbrian Water

PACCAR

Pepsico

Pfizer

P&G

Rio Tinto

Roche

Rolls-Royce

SGN

Scottish Power

Segro

Severn Trent Water

Shell

Siemens

Sky

UK Power Networks

South East Water

SSE

Suez

Tate & Lyle

Thames Water

Total

Toyota

Transport for London

Unilever

UPS

United Utilities

Vattenfall

Veolia

Verizon

Vodafone

Wales & West Utilities

Walmart

Wellcome Trust

Wessex Water

Western Power Distribution

Yorkshire Water

Contributor

Patrick Collinson

The GuardianTramp

Related Content

Article image
Bank's post-Brexit strategy hits snag as gilt buyback falls short
Threadneedle Street offered to buy back £1.17bn of bonds from institutional investors but received offers of only £1.11bn

Jill Treanor and Larry Elliott

09, Aug, 2016 @7:04 PM

Article image
City turbulence drives some bond yields into negative territory
Bank of England says it could have bought almost five times as many bonds as it needed on third day of latest QE

Jill Treanor and Larry Elliott

10, Aug, 2016 @7:04 PM

Article image
Bond bubble threatens financial system, Bank of England director warns
Andy Haldane fears the bursting of 'the biggest bond bubble in history' after electronic money printing exercises by the Bank of England and the Federal Reserve in the US

Jill Treanor

12, Jun, 2013 @4:58 PM

Article image
Why Bank of England's bond-buying failure may not be just a blip | Larry Elliott
Lack of willingness at financial institutions to sell long-dated bonds suggests monetary policy won’t be enough to boost growth

Larry Elliott

10, Aug, 2016 @7:00 PM

Article image
Bank of England to hand over gilts interest payments to slash national debt
Move will cut national debt in short term and reduce interest payments on money government has borrowed over the years

Larry Elliott, economics editor

09, Nov, 2012 @2:11 PM

Article image
Bank of England ‘addicted’ to creating money, say peers
BoE must be more transparent and justify use of quantitative easing, says Lords report

Larry Elliott Economics editor

15, Jul, 2021 @11:01 PM

Article image
Gilts plunge as interest rate rises recede
The Bank of England’s next move could be more QE or even interest rate cuts. But would Osborne ever consider the activity booster of infrastructure investment?

Larry Elliott

11, Feb, 2016 @6:29 PM

Article image
Bernanke set to begin Fed's tapering of QE – but is the US economy ready?
After years of the Fed pumping $85bn a month into financial markets, the strength of the American recovery will be tested

Heather Stewart and Katie Allen

15, Sep, 2013 @8:25 PM

Article image
For the Covid economic recovery look to the Treasury, not the Bank
Fears about high government borrowing raising inflation and interest rates are overstated

Larry Elliott

01, Nov, 2020 @10:45 AM

Article image
Second England lockdown fuels fears of Covid double-dip recession
Economists predict a further GDP fall from between 7.5% and 10% with unemployment to soar

Phillip Inman and Larry Elliott

01, Nov, 2020 @3:18 PM