Sir Douglas Flint knows firsthand about the horrors of meltdowns on the mortgage market. After the 2008 global financial crisis, which left HSBC reeling, the former Chairman of HSBC helped to get the British lender on its feet.
HSBC was especially affected by the collapse of US sub-prime loans. It owned a $118billion American mortgage book. The City legend, aged 66 is now warning households to be careful about building up large debts just as interest rates rise to help them buy homes.
“I don’t believe this is the right time to encourage over-leverage.” [borrow too much]He said that the housing market was a hot topic. “House prices are an ever-increasing multiple of the average income.
Inspiration: Following a trip in China, Sir Douglas Flint was inspired to take over the IP Group position
Flint’s intervention is just days following the Bank of England raising interest rates from 0.1% to 0.25 percent, a historic low.
To curb inflation, economists expect more increases in the Bank’s base rate to be implemented by 2022. It also happens just as Bank eases its mortgage rules, which were established after the financial crisis in order to prevent borrowers from taking on excessive amounts.
A requirement that mortgage applicants must be able to afford three percentage points higher interest rates is being removed by the central bank. The interest rate rule being repealed would allow young people to borrow more money, which will help them to move up the housing ladder in an era when house prices rise.
Flint is clearly nervous about this message after recent financial crashes. When it hiked rates this month – just weeks before Christmas and as Omicron cases surge – the Bank faced criticisms for surprising the financial markets.
‘Pour pension billions into science’ Flint, who was HSBC chairman between 2011 and 2017 after serving as finance director for 15 years, says unpredictable moves like that are bad news for the economy.
If interest rates start to rise rapidly to tame inflation – and without a clear and calm course set out by the Bank – those who have taken on large debts to finance a house purchase could easily come unstuck.
Flint believes that the economic absorbs interest rate movements, regardless of where they land, because they are anticipated to move in an expected pattern.
‘[But]Unexpectedly moving them can cause more. [negative] reaction.’
Was the Bank of England’s surprise interest rate hike in December too little, too late – leaving Britain hostage to rapid price rises in 2022? Flint said that if I only looked at inflation, there would likely be earlier interest rate increases.
“But, I don’t wish to choke the economic system when we’re experiencing another slowdown,” he says.
“People don’t have the time to go to work, which is having an effect on the hospitality and service sectors. Although we were expecting a fantastic December, it’s not happening.
Flint left HSBC to become chairman of FTSE100’s asset manager Abrdn. He also chairs the IP Group, a FTSE250 fund that invests in technology and science startups.
IP Group was founded in 2001, initially in an exclusive partnership with the chemistry department of the University of Oxford, allowing the company to invest and develop ideas into viable businesses. The company now collaborates with many universities around the world.
Flint became inspired after she accompanied Theresa May, former Prime Minister of Great Britain on a visit to China. What is IP’s specialization? Flint says that they don’t specialize in gaming, gambling, or dating.
Flint’s intervention came just days following the Bank of England raising interest rates to 0.25 percent, a record low.
“We work in bioscience, green transformation technology and other tech that has a significant social impact. IP Group is more than a long-term investor, we are a public company and can help you recruit the best people. Oxford Nanopore was the largest company that we have ever worked with. It was a 15 year investment which finally made it to the public market this year.
Oxford Nanopore has IP Group as its biggest shareholder. This genomics company helped scientists monitor the spread of Covid-19. In September it floated on London Stock Exchange. Shares jumped 40% on its first trading day. The company has a market value of £5.7billion.
Flint state emphatically, “Oxford Nanopore is the most important investment that we’ve made for many, many thousands of many, many years.”
‘It’s one of the very few real technology companies that’s floated in the UK – the majority have gone to Nasdaq or Hong Kong.’ Is there any risk Oxford Nanopore would float abroad? According to him, there were banks that tried to list Oxford Nanopore overseas, but the company knew it was a good idea. The UK has been the home of its research and products, so the UK is the best place for them to be listed.
It is a booming sector. Last week, pharmaceutical company Novartis struck a $1.5billion (£1.1billion) deal to buy Gyroscope Therapeutics, which has a London-listed parent company called Syncona. Flint’s tenure at IP Group wasn’t easy. After a string of dangerous bets and a disgraced manager, Neil Woodford was an important shareholder in IP Group.
Flint admitted that “It’s really a story with two halves.” ‘Neil Woodford was for a long period of time hugely important to investment in science and technology in the UK – he was one of the leading investors. This should not be overlooked. He was a major shareholder in IP Group, but the crossover between what IP Group was investing in and what he was investing in was, in the latter years, incredibly small.’ Woodford had sold his IP Group holdings in 2019. Railway Pension funds joined to take a 15 percent stake and became one of the biggest shareholders.
Flint believes that more pension funds need to look at British life sciences and start-ups. ‘One of the biggest opportunities is for the Government to look very carefully at the policy and regulation around areas that it wants to attract investment into – so technology, bioscience, infrastructure,’ he says.
“Science, if we want to be a globally relevant area of activity, is the one where we truly can punch above our weight and have a history of exceptional success.”