Financials Unshackled Issue 24: Weekly Banking Update (UK / Irish / Global Developments)
Perspectives & Snippets on UK / Irish / Global Banking Developments
The material below does NOT constitute investment research or advice - please scroll to the end of this publication for the full Disclaimer
Good morning - and welcome to the latest edition of Financials Unshackled! This note is split into five sections: i) Calendar for the week ahead; ii) Essential Updates; iii) Other UK Highlights (other key UK sectoral and company developments in the last week); iv) Other Irish Highlights (key Irish sectoral and company developments in the last week); and v) Global / European Highlights (select key developments in a Global / European context).
If you want to discuss any of the items covered in this note please email me at john.cronin@seapointinsights.com.
Calendar for the week ahead
Mon 16th Dec: UK Finance Mortgage Market Forecasts - 2025-2026
Mon 16th Dec (11:00 BST): Central Bank of Ireland (CBI) SME and Large Enterprise Credit and Deposit Statistics - Q3 2024
Tue 17th Dec (00:01 BST): Central Bank of Ireland (CBI) Quarterly Bulletin - Q4 2024
Tue 17th Dec (15:00 BST): UK Finance Card Spending Update - Sep 2024
Thu 19th Dec (12:00 BST): Bank of England (BoE) Monetary Policy Summary & Monetary Policy Committee (MPC) Meeting Minutes
Fri 20th Dec (11:00 BST): Central Bank of Ireland (CBI) Mortgage Arrears & Repossessions - Q3 2024
Essential Updates
Supreme Court to hear appeal to Hopcraft judgment
The UK banks that have seen selling pressure on the back of the motor finance debacle saw their share prices rebound somewhat during the middle of the week following a RNS issued by Close Brothers Group (CBG) at 11:18 BST on Wednesday 11th December which noted that the Supreme Court has granted Close Brothers Limited (CBL) Permission to Appeal the recent Court of Appeal judgment against CBL in respect of the Hopcraft motor finance commissions case (UK Supreme Court announcement confirming it has granted Permission to Appeal to both CBL and FirstRand can be viewed here). It is also helpful to note that the Supreme Court announcement confirms that the appeals will be listed during Hilary Term in 2025 (i.e., we will find out what date the appeal hearings will be held on some time between Monday 13th January and Wednesday 16th April). Contrary to what has been reported in the media this does not necessarily mean that the Supreme Court will schedule the appeal hearings on an expedited basis (following the submission of a letter by the FCA to the Supreme Court requesting that any hearing be expedited - which I reported on in Financials Unshackled Issue 23 here), i.e., while we will find out the date on which the appeals will be heard some time between Monday 13th January and Wednesday 16th April, it doesn’t therefore follow that the hearings will actually take place during that window. Indeed, The Times reported on Wednesday evening that lawyers have said than any final decision could still be up to a year away (read the article here). However, it does seem likely that pragmatism will prevail, especially considering how quickly the Supreme Court has confirmed Permission to Appeal - and it was interesting to read, in a Bloomberg article that was published on Wednesday afternoon, that a spokesperson for the Supreme Court reportedly said that the appeal is set to take place during the January to March 2025 window (read the article here). So, it looks likely we will have some welcome clarity within the relative near-term.
Elsewhere, in a motor finance-related context, there has been a wave of press reports noting that the total cost of the saga (taking into account both the FCA’s investigation into the use of discretionary commission arrangements (DCAs) and the implications of the recent Court of Appeal judgment, unless overturned) could top the total bill of c.£50bn for the industry associated with payment protection insurance (PPI) misselling. These articles were circulated following the FCA’s appearance at the Treasury Select Committee (TSC) on Tuesday morning during which Stephen Braviner Roman (General Counsel and Executive Director of Legal, Risk, Compliance and Corporate Governance) of the FCA noted that the regulator had previously concluded, prior to the Court of Appeal judgment, that the FCA’s own investigation into DCAs alone would not result in costs for the industry on a scale commensurate with the costs associated with the PPI scandal. He would not confirm that the total costs would come in under £50bn if one were to take into account the implications of the Court of Appeal hearing (assuming it is not overturned by the Supreme Court). My perspective on this is that there is absolutely nothing new or to read into in these comments - and here’s why: i) there is an enormous variation in the estimates of what the costs for the industry could be emanating from the Court of Appeal judgment - while everyone wants ‘a number’ and just because Moody’s has estimated that (‘just’) an additional c.£9bn of costs could be incurred as a result of the court ruling does not mean that Moody’s is right (its analysis - which you can read here - is high-level and is clearly subject to many assumptions) and the bottom line is that it would be churlish to make any definitive comments at this stage; ii) moreover, it is not the FCA’s jurisdiction to estimate what the legal costs for the industry could be so there was no way Braviner Roman would have been publicly conclusive on the point and the FCA will likely keep its comments on expected outcomes solely to what is directly related to whatever investigations it is running itself (without opining on wider legal consequences, etc.); and iii) in an interrelated context, it would surely have been widely criticised - not least in legal circles - as completely inappropriate ‘intervention’ were Braviner Roman to have issued a conclusive view, drawing heat on the regulator (especially at a sensitive time for the FCA given perceptions that government is ‘breathing down its neck’ at present).
There was an interesting in-depth piece in The Guardian on Monday 9th December on the claims management companies (CMCs) and claims law firms (CLFs) who are pursuing motor finance claims with vigour. The article gives some history in relation to how the CMCs / CLFs market has evolved and it’s worth a read. Access it here.
Finally, S&P Global Market Intelligence published a useful summary of the debacle in broad terms on Thursday last, which you can read here if you want to catch up on the key points.
Other UK Highlights
BoE publishes Q3 2024 MLAR statistics
The Bank of England (BoE) published its quarterly Mortgage Lenders and Administrators Statistics for Q3 2024 (i.e., the three months to 30th September) on Tuesday 10th December (access the publication here). Key findings: i) the outstanding value of all residential mortgage loans grew by 0.6% q/q (up from +0.4% q/q in 2Q) and 0.8% y/y, a function of strong growth in advances which were +8.9% q/q and +6.7% y/y; ii) the value of new mortgage commitments was -1.3% q/q to £66.0bn, though was +34.2% y/y; iii) the proportion of lending to borrowers with a high LTI increased by 2.9pps q/q to 45.3% but was below the 45.4% level at end-3Q23; iv) the share of gross mortgage advances for BTL purposes decreased by 1.1pps q/q to 7.9% but was +0.5pps y/y; and v) the value of outstanding mortgage balances in arrears reduced by 0.4% q/q to £21.9bn (+17.5% y/y, down from +32.0% y/y at end-2Q) with the proportion of total loan balances with arrears remaining at 1.3% at end-3Q (up from 1.29% at end-1Q). Based on latest (more timely) BoE Money and Credit Statistics (the October update was covered in Financials Unshackled Issue 22 here) I expect we will see the outstanding value of all residential mortgage loans rise further, the value of new mortgage commitments to expand again, and arrears to decline within the Q4 2024 MLAR statistics (which are due to be published on Tuesday 11th March).
Shareholding Changes
NatWest Group (NWG) issued a RNS on Friday 13th December noting that HMT’s shareholding in the lender has now fallen to <10% (9.99% to be precise; previously disclosed shareholding: 10.99%) following a transaction on Thursday last under the trading programme which sees Treasury drip-feed stock into the market on an ongoing basis. Given the revised significantly higher limit on directed buybacks following the changes to the Listing Rules on 29th July last, I expect that the remaining shareholding will be disposed of through a combination of the ongoing drip-feeding of stock to the market and one final directed buyback following the FY24 results (which are due to be published on Friday 14th February) - and I expect that Treasury will be fully off the register before the end of 1Q25.
Vanquis Banking Group (VANQ) issued a RNS on Thursday 12th December noting that Norges’ shareholding in the bank increased further to 4.51% (previously disclosed shareholding: 3.82%) following a transaction on Tuesday 10th December.
Distribution Finance Capital Holdings (DFCH) issued a RNS on Monday 9th December noting that Pentwater Capital’s shareholding in the company reduced to <3% (previously disclosed shareholding: 3.68%) following a transaction on Friday 6th December. DFCH issued a further RNS on Tuesday 10th December noting that Crucible Clarity Fund’s shareholding in the company increased to 4.54% (previously disclosed shareholding: 3.66%) following a transaction on Monday 9th December.
Sector Snippets
UK Finance publishes Business Finance Review for Q3 2024: UK Finance published its quarterly Business Finance Review (for Q3 2024, i.e., the three months to 30th September) last week. This is a useful document for getting up-to-speed on latest trends in commercial lending markets and you can access it here. In overall terms the report notes the modest growth in new lending to SMEs observed over the course of 2024 - though, consistent with BoE reports, the industry body acknowledges that this has been outweighed by repayments, “leaving net lending firmly negative”. Additionally, the total value of SME deposits was -6% y/y at the end of September.
FLA publishes October 2024 lending statistics: The Finance & Leasing Association (FLA) published its latest monthly specialist lending market statistics (for October 2024) on Monday 9th December. In short: i) asset finance originations were +4% y/y in October and +4% y/y for the 12 months to end-October 2024 (see here); ii) consumer finance originations were +2% y/y in October and +3% y/y for the 12 months to end-October 2024 (see here); iii) consumer car finance originations were -2% y/y in October and +2% y/y for the 12 months to end-October 2024 (see here); and iv) second charge mortgage originations were +39% y/y in in October and +19% y/y for the 12 months to end-October 2024 (see here). So, growth right across the board then for the 12 months to end-October.
Mortgage pricing edges modestly downwards: Rightmove’s latest Weekly Mortgage Tracker (access it here) shows a slight reduction in average 2Y and 5Y fixed rate mortgage prices to 5.07% (-1bp week-on-week) and 4.82% (-3bps week-on-week) respectively. There were reductions observed across all LTV bands. Plenty of rate cuts were announced by lenders in the last week so I would expect average pricing to slip back a bit further from here over the next couple of weeks.
Housing market forecasts for 2025: Rightmove published perspectives on how the UK housing market will fare in 2025 on Thursday 12th December (read the note here). In short, Rightmove expects: i) average asking price growth of 4% y/y; ii) 2Y and 5Y fixed rates to fall to c.4.0% (assuming 4 base rate reductions - so this implies broadly stable mortgage spreads but I wouldn’t overthink the level of analysis there has been from a spreads standpoint here); iii) remortgaging to be a major focus for lenders (you can access Rightmove’s remortgage rate tracker here); and iv) growth in completions to c.1.15 million in 2025. Should these predictions materialise, it would be a positive backdrop for transaction activity and asset quality from a lenders’ perspective in 2025. Investors Chronicle also featured a piece on what UK house prices will do in 2025 on Tuesday 10th December - you can read it here. Finally, RICS published its monthly Residential Survey for November last week with the findings showing “…a gentle up-trend across the market, with metrics on new buyer demand, new instructions and house prices all continuing to register readings in expansionary territory” (access it here - and see the press release here).
Annual rental inflation running at 3.9%: Hometrack published its latest UK Rental Market Index last week (access it here). Annual growth in rents has slowed to its lowest level in three years, with UK rents +3.9% in the 12 months to end-October to £1,270 pcm. Richard Donnell, Executive Director at Hometrack, notes that “Rental market and London lagging while rents rise in more affordable areas conditions are improving, but the supply/demand imbalance is set to remain over 2025. Affordability will limit rental inflation in areas with high rents, but there is room for rents to rise faster than earnings in more affordable areas over 2025”. Notably, the RICS report referenced above observed a modest shrinkage in tenant demand in November.
Company Snippets
Barclays deep dive on Private Bank & Wealth Management business: Barclays (BARC) hosted an analyst / investor seminar on its Private Bank & Wealth Management activities on Tuesday 10th December. A key focus of the session was on the identified opportunity to drive client acquisitions from Barclays UK (BUK) - with c.4 million BUK customers who have a high propensity to invest in particular focus. The session also reflected on how BARC can deliver more for its international clients, on how it has restructured the business to become simpler, and on why the growth strategy is an organic one. You can access the slide deck here, the transcript of the management speech here, and the webcast replay here.
HSBC targeting $3bn+ in cost reductions: Bloomberg reported on Wednesday 11th December that, according to sources, HSBC (HSBA) management has communicated to staff that its restructuring will take until June 2025 to complete and that it expects the refresh to result in annualised cost reductions of at least $3bn, which is close to 10% of annual opex (read the article here). The FT further reported on Thursday that the bank is reviewing its retail banking operations outside of the UK and Hong Kong, which could see the lender scale back substantially in various jurisdictions including Indonesia, Malaysia, and Mexico - but with a refreshed focus on “premier” wealth clients in those geographies (read the article here).
LendInvest reports positive adjusted EBITDA for 1H24: LendInvest (LINV) published interim results for the six months to 30th September (1H24) on Monday 9th December. The firm has been in expansion mode with strong growth in funds under management (FUM) to £4.67bn (+13% h/h) and new lending to £539m (+14% h/h) and turned a corner by posting a positive adjusted EBITDA of £0.3m for the period (loss before tax of £1.7m, marking a significant improvement on the £15.7m loss before tax in 1H23). You can access the slide deck here and the results document here. If anyone is interested in detailed reporting on and rigorous analysis of less well-covered names like LINV please let me know and I’ll reflect on it in terms of my future product proposition.
Investors Chronicle on Metro Bank: Jemma Sligo at Investors Chronicle published a note on Metro Bank (MTRO) on Tuesday last. The core focus of the note is on whether MTRO can deliver the implied substantial loan growth it needs to achieve in its commercial lending book (including asset finance and invoice finance) to deliver upon its financial targets. It’s certainly a valid concern that has prevailed for some time since MTRO issued detail in respect of its refreshed strategy (and given MTRO had bullish commercial lending targets in place back at the stage of its IPO which it really didn’t deliver on) - though it is important to note that CEO Dan Frumkin has made it clear that management purposefully pulled back on growing its commercial lending portfolio owing to AIRB considerations). Read the piece here.
NatWest Group Updates: A few updates from the last week to flag in a NatWest Group (NWG) context: 1) Lena Wilson will assume the role of Senor INED from 1st April 2025 (following the retirement of Mark Seligman from the Board on 31st March, as announced by NWG on 26th July last) and Gill Whitehead (former Group Director, Online Safety at Ofcom) has been appointed to the Board as an INED with effect from 8th January 2025 (more detail on both changes in the RNS from Friday 13th December here). 2) Gary Moore has been appointed as Group Chief Governance Officer & Company Secretary with effect from 14th February 2025 (more detail in the Friday 13th December RNS here). 3) Sky News reported on Saturday that it has become aware that Lena Wilson, current Chair of the Remuneration Committee, is consulting institutional shareholders about an overhaul of the Board remuneration policy - with a revised proposed policy set to be tabled at the AGM in Spring (a date has not yet been publicised but the 2024 AGM was held on 23rd April for reference), which is expected to propose much improved incentives for the CEO Paul Thwaite. This is not surprising - indeed, Thwaite and the wider Board might as well seek to capitalise on the strong share price performance delivered in 2024 as well as the likelihood that Treasury will be completely off the share register by the time of the AGM (see above note for more detail in this latter respect). Timing is everything. Read the Sky News article here.
S&U trading statement points to flat y/y net receivables: S&U (SUS) issued a trading update for the period from 1st August to 10th December 2024 on Wednesday 11th December. In short, management blames the recent Court of Appeal judgment as well as the “poorly received budget” for materially lower advances in its Advantage motor finance division (-33% y/y in the YTD), which has seen net receivables decline by 10% y/y to £295m. However, its Aspen bridging finance business has seen net receivables grow by 30% y/y to £154m - meaning, in overall terms, that net receivables are flat y/y. On profitability, SUS notes that Advantage PBT for the 132-day period was around half the level of the same period in 2023 but that Aspen PBT for the same period was +c.50% y/y. You can read the trading statement here.
Santander UK appointment: Santander UK announced the appointment of Enrique Alvarez Labiano, CEO of Retail and Business Banking, as an Executive Director to the Boards of Santander UK plc and Santander UK Group Holdings plc on Friday last. More detail in the RNS here.
Standard Chartered NED retirement: Standard Chartered (STAN) issued a RNS on Wednesday last noting that David Conner, INED, will retire from the Board with effect from 30th December following a nine-year stint. Some changes to the composition of its Board Committees were also conveyed within the RNS, which you can read here.
Would BBVA sell TSB?: S&P Global Market Intelligence published a note on Tuesday 10th December citing analysts’ views to the effect that BBVA would likely pursue a disposal of TSB were it to succeed in its hostile effort to acquire TSB’s owner, Sabadell (access the piece here). I commented in Financials Unshackled Issue 23 on BBVA CEO Onur Genc’s remark at the recent FT Global Banking Summit that he is “neutral” in the context of whether BBVA would choose to retain TSB in the event that the bid for Sabadell gets across the line. My own sense is that BBVA would indeed be more likely to sell and I would expect prospective buyers to be NatWest Group (NWG), Lloyds (LLOY), and Barclays (BARC) - I feel it is less likely that Nationwide would bid (despite the CEO’s detailed knowledge of TSB having run the bank) given its focus on integrating the recently acquired Virgin Money UK business. Also, note that LLOY was a forced seller of TSB in the past and may well have an interest in re-acquiring the bank should the opportunity to do so arise (though LLOY, in particular, could run into mortgage market share concentration issues). However, one must also bear in mind that BBVA owns a significant shareholding in Atom Bank and this could present other interesting optionality in the context of what to do with TSB.
Warburg Pincus acquires minority shareholding in United Trust Bank: United Trust Bank (UTB) issued a press release last week noting that Warburg Pincus has acquired a minority shareholding in the specialist lender in a transaction that values UTB at c.£520m. An interesting transaction that will stimulate attention on what the PE firm’s intentions are for the business - as well as whether other UK bank acquisitions could be pursued by Warburg Pincus in due course. Read the press release here.
Irish Highlights
Shareholding Changes
Bank of Ireland Group (BIRG) issued a RNS on Thursday 12th December noting that BlackRock continues to sell down its investment in the bank, with its shareholding falling to 6.32% (previously disclosed shareholding: 6.90%) following a transaction on Tuesday 10th December.
PTSB issued a RNS on Friday 13th December noting that Goldman Sachs has built a 6.54% shareholding in the lender (previously disclosed shareholding: nil) following a transaction on Monday 9th December. This stake is likely to be held in a nominee capacity on behalf of a third party investor.
Mixed fortunes for the major lenders in SREP review
Bank of Ireland Group (BIRG) issued a RNS on Wednesday 11th December noting that its Total Capital Requirement (TCR) for 2025 will be 15.90% following the ECB’s 2024 SREP process - which implies a CET1 capital ratio requirement of 11.35%, excluding Pillar 2 Guidance (P2G). This reflects a 5bps increase in BIRG’s Pillar 2 Requirement (P2R), resulting in a 3bps increase in CET1 requirements. BIRG’s target CET1 capital ratio is maintained at >14% - and, although we don’t know what BIRG’s P2G is, this still looks to be on the high side, especially in view of the Central Bank of Ireland’s (CBI) recent decision to maintain the CCyB rate at 1.5% and to effect no changes to the O-SII buffers.
AIB Group (AIBG) issued a RNS on Thursday 12th December noting that its TCR for 2025 is reduced by 20bps to 15.83% owing to a 20bps reduction in its P2R. This implies a CET1 capital ratio requirement of 11.28% (so, now lower than BIRG’s CET1 requirement), excluding P2G. Helpfully, the AIBG RNS notes that, following the ECB's revised P2G methodology, AIBG confirms it is in bucket 3 which has a P2G range of 1.00-2.75%. The AIBG RNS is silent on the bank’s target CET1 capital ratio (which we know is >14% too). Again, this >14% CET1 ratio target is, in my view, on the high side - assuming that AIBG’s P2G level is at the lower end of the 1.00-2.75% range.
In overall terms, given there is no change to CET1 targets, these developments are not of enormous significance at the current time. The 20bps reduction in AIBG’s P2R is quite meaningful nonetheless - while the 5bps increase in BIRG’s P2R is not particularly material. It is possible that we will see a downward shift in target CET1 capital ratios in time (to, perhaps, c.13.5% - or, whisper it, maybe even c.13.0% eventually) - though that is unlikely to be at the stage of the FY24 results for either bank (and, most certainly, not in the case of BIRG as the UK motor finance debacle continues to rumble on). Any downward revision to capital targets would be constructive in both a RoTE and a shareholder distributions context.
PTSB pushing for material cost reductions
It was widely reported in the Irish media on Tuesday that PTSB has announced a voluntary redundancy scheme in a staff memo on that same day - extending the scope of the voluntary redundancy scheme that was launched in October targeting about 20 senior managers (which I reported on here in Financials Unshackled Issue 10). PTSB reported FTEs of 3,240 at end-June and noted in its 3Q trading update that “management remain committed to reducing costs in absolute terms over the coming years”. The Irish Times reported on Friday that the Financial Services Union (FSU) - which has labelled the job cuts plan as “reckless and damaging” - has said that up to 500 staff are set to depart under the scheme, with 100 in IT, 200 in retail, and a further 200 across the wider organisation (which PTSB reportedly dismissed as “without foundation” and speculative). The Business Post reported on Sunday that the terms of the redundancy package will be the higher of: i) 4 weeks’ basic pay per year or service plus statutory redundancy entitlements; ii) five weeks’ basic pay per year of service including statutory redundancy entitlements; and iii) 20 weeks’ actual salary plus statutory entitlements.
While there has been a lot of negative dialogue in the media in relation to the intended cuts (especially given the timing, just before Christmas), there are three key observations I would make:
PTSB needs to address its cost base. Its adjusted (effectively, underlying) Cost/Income ratio of 73% in 1H24 compares highly unfavourably to European banks - and, indeed, to its listed domestic peers (for context, AIB Group (AIBG) and Bank of Ireland Group (BIRG) reported Cost/Income ratios of 38% and 44% respectively in 1H24). Lower official rates could make things worse. Management simply has to do this.
The reality is that PTSB, as a bank in which the Government remains a majority shareholder with a 57% shareholding, was never going to announce a major voluntary redundancy programme ahead of the 29th November General Election. That could have backfired for the incumbent political parties. Let’s just say that management is probably good at ‘reading the political tea leaves’. Management has a business to run and can’t be waiting around until the new year in all fairness. It did enough to warm up the staff base and the wider market it could be argued (with the October voluntary redundancy announcement).
It is a voluntary scheme according to all the press reports. Now, if PTSB doesn’t get the numbers it needs, then it will likely have to go down the compulsory route - but, for now, it will be a choice for each employee as to whether or not to apply (though the inevitable - somewhat subtle - ‘shoulder-tapping’ exercise that accompanies such schemes is undoubtedly already in train).
Prospective financial impacts - a perspective:
If we just simply annualise 1H24 staff costs of €116m - so, €232m p.a. and run with an assumption that the staff base is slashed by 500, then, simply assuming that the average staff cost per FTE of those departing resembles the average staff cost per FTE across the wider organisation, that would mean a 15% reduction in annualised staff costs of c.€35m (and it could be higher than this figure if take-up weighs towards longer tenure higher paid staff). That would equate to about a 10pps reduction in Cost/Income (though one-off redundancy-related costs could reasonably be expected to be in the €35-45m+ range on my back-of-the-envelope calculations), which moves the dial considerably - though sub-optimal scale (not helped by its excessively high risk weights on stock and flow relative to peers, reflecting a bygone era) remains an issue. The danger with voluntary redundancy programmes is that management doesn’t get to choose who goes (though presumably the terms of the scheme will allow management reject applicants it wants to retain as it sees fit) and more experienced staff with a longer tenure often take the package due to its attractiveness (not necessarily a negative provided the experience loss can be contained as it can mean a bias towards higher-paid employees leaving). The other ongoing concern will be whether the organisation will be operating on too much of a shoestring - especially from a technology / systems perspective. It’s hard to know from the outside and we expect that management will be engaging intensively with investors in the coming months to reassure on this front.
Irish loan / deposit volume and pricing trends broadly favourable
The Central Bank of Ireland (CBI) published its monthly Retail Interest Rates update for October 2024 on Wednesday 11th December. Click here to read the release. All in all, the data point to pretty favourable volume and pricing conditions for the banks once again. Key points:
The weighted average interest rate on new Irish mortgage agreements at end-October was 4.03% (-5bps m/m, -24bps y/y) - though average rates are now 51bps higher than the euro area average (up from 40bps higher at end-August and 49bps higher at end-September), meaning Ireland remains 6th highest in the euro area for mortgage originations pricing. This didn’t get any meaningful attention in the run-up to the recent General Election and I suspect the political system is unlikely to apply any great pressure on the banks in this vein in the relative near-term. I expect that Irish banks will seek to recoup some loan spread in a mortgages context as official rates continue their descent.
The volume of new mortgage originations was +28% y/y in October to €1.1bn, following +30% y/y growth in September (renegotiated agreements were +30% m/m to €298m, following +66% m/m growth observed in September). Outstanding mortgage stock stood at €85.5bn at end-October, +1.8% y/y.
Fixed rate mortgages represented 72% of the volume of new mortgage agreements in October (up from 70% in September) with standard variable rate agreements comprising the residual 28% (the take-up of variable product has ratcheted up significantly in recent times as consumers expect official rate reductions to translate into lower pricing - though I suspect fixed product take-up will keep growing now as a share of new lending).
The interest rate on new consumer loans increased by 23bps y/y (+13bps m/m) to 7.87% in October. The total volume of new consumer loans was €196m in October, down from €214m in September - and -3.4% y/y. However, it must be noted that the pricing on, and volume of, new consumer loans can fluctuate quite wildly on a monthly basis. Outstanding consumer loan stock stood at €18.1bn at end-October, +1.2% y/y.
New NFC (non-financial corporate) borrowing in October fell back to €1.0bn, -10% y/y - but the data is notoriously choppy m/m and this followed a substantial print of €2.4bn in September, which was +124% y/y. The weighted average interest rate on new lending was +99bps m/m to 5.07% in October (which was 50bps ahead of the average euro area equivalent rate - of 4.57%), though this was -77bps y/y. Outstanding NFC loan stock stood at €57.3bn at end-October, -2.5% y/y.
The average rate on household overnight deposits was +1bp m/m at 0.14% in October 2024 while the average rate on NFC overnight deposits held firm m/m at just 0.12%. The majority of listed Irish banks’ customer funding sits in current accounts so this data, once again, illustrates the enormous liability margin benefits that the listed banks have enjoyed since official rates started to rise. The weighted average interest rate on new household agreed maturity deposits and new NFC term deposits was +1bp m/m to 2.64% (+5bps y/y) and +1bp m/m to 2.76% respectively in October (-94bps y/y). The corresponding average euro area rates were 2.73% for new household agreed maturity deposits and 3.06% for new NFC agreed maturity deposits.
The total stock of deposits stood at €235.5bn at end-October (household €159.9bn, NFC €75.6bn), +3.8% m/m and +3.4% y/y.
Sector Snippets
The Banking & Payments Federation Ireland published its Housing Market Monitor for Q3 2024 (i.e., the three months to end-September) on Thursday 12th December. The mortgage approvals and drawdowns data contained in the report have already been reported (I covered these in Financials Unshackled Issue 13 here) and the key take-aways are that dwelling completions were up 6.3% y/y in 3Q while dwelling commencements were +82.0% y/y. However, the rate of increase in housing supply has slowed through 2024 and supply remains a major issue in the face of strong demand and income growth. You can read the press release here and the report here.
The Central Bank of Ireland (CBI) , on Wednesday 11th December, issued proposals to increase credit union lending limits and a public consultation has been launched, which would see credit union capacity for house and business lending increase to €8.6bn from €2.9bn. This has been coming for a while and is unlikely to spook bankers though valid questions arise in the form of risk management capability and concentration issues at an individual credit union lender level. Detailed information is available here.
I wrote on three themes of international relevance - but with implications for the domestic lenders (i.e., the UK motor finance debacle, bank M&A, and SRTs) - in my latest Business Post article on Sunday and you can read it here. I was also delighted to speak with John Mihaljevic on the MOI Global podcast earlier this month (the podcast aired on Tuesday) on how Irish banks are uniquely positioned (listen back here). Finally I was delighted to participate as a speaker at the S&P Global Ratings webinar last week on the outlook for UK & Irish banks in 2025 (see here).
Company Snippets
It was interesting to see the AIB Group (AIBG) CEO Colin Hunt select the mass market Sunday Independent for his latest media interview - which published yesterday (read it here). In overall terms Hunt struck a significant political / economic-focused tone. Some key comments made by Hunt which captured my attention were: i) “…the timing of any future share sales is entirely a matter for the State”; ii) “The economic backdrop is positive and we are a bigger bank in a growing economy and that’s reflected in our numbers”; iii) “2024 will be another very, very strong year and as the interest rate cycle normalises, as we see rate cuts unfolding, you will see our interest income moderating, but we will still be among the very best performers”; iv) AIBG only passed on 40% of the official rate hikes to mortgage customers (which, as an aside, is why I see mortgage spreads widen across the sector (as noted above) as liability margin benefits taper in response to falling official rates); v) “You have seen us doing more in terms of wealth, in terms of insurance, in terms of financial planning, and that will become an ever more important driver of the bank’s income over the years ahead”; vi) “We need 50,000 [housing] units [a year (that’s what’s generally accepted by the politicians though economists have strongly argued that it’s not enough to be clear)]…So we’re very, very eager to deploy more capital in the building of houses. It’s good for the economy, it’s good for society, it’s good for the bank”; and vii) “We remain steadfast in our view that the greatest challenge facing this country and indeed the world is climate change. It’s no longer a threat. It’s a reality. We’re seeing it every single day across the world”.
It was widely reported in the media last week that Revolut’s Irish customer base has now risen to 3 million - with 429,000 of its customers under 18 years of age, indicating it is the most prominent bank amongst that younger age cohort. Additionally, it was reported that Maurice Murphy has been promoted to Head of European Lending and has joined the Revolut Bank Management Board - with Malcom Craig succeeding Murphy in the Ireland Country Lead role. The Sunday Times further reported that Revolut intends to launch credit cards and a refreshed range of personal loans in Ireland in 2024. While the bank has a large customer base it is still the case that very few appear to use it as a primary banking provider - that doesn’t mean it can’t address this or make some inroads from a lending perspective in the interim though. As Revolut works through its trust issues over the coming years it is hard to see how it will not give incumbents (across multiple jurisdictions) a major wobble in due course (though it will still take considerable time in my view) as it leverages its efficient operating base, superior technology, and growth culture to become a global bank.
The Business Post reported on Thursday 12th December that ICS Mortgages (Dilosk) has passed through the latest ECB rate reduction to its variable rate mortgage customers. It will be interesting to see what the future will bring for Dilosk. Read the article here.
Global / European Highlights
Snippets
Good article in the FT on Tuesday on the boom in global structured finance transactions, with volumes hitting $380bn in the year-to-date (per LSEG data), up >20% y/y. Read it here.
The European Banking Authority (EBA) published a report on Friday showing that EU banks’ liquidity coverage ratios (LCRs) increased by 3pps y/y to 167% at end-June. Read the press release here and the report here.
The ECB reported last week that less significant institutions (LSIs) have seen improved profitability and capitalisation over the last two years owing to improved net interest margins (NIMs) on the back of higher official rates. Read the report here.
Investment bank analysts remain broadly positive on European banks heading into 2025 despite headwinds - read a Bloomberg report from Friday here on this. The Wall Street Journal picked up on two reports last week, namely: i) a Citi report noting that earnings momentum is set to stall next year owing to lower net interest income (NII) and subdued loan growth; and ii) a Goldman Sachs report in which the analysts note that they remain “selectively constructive” with 2025 potentially set to “…be a ‘proof of concept’ year for European Banks—one in which they withstand the reset in rates, with performance normalizing at a level which supports continued capital distribution and earnings growth”.
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