Financials Unshackled Issue 25: 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 afternoon - and welcome to the latest edition of Financials Unshackled. This note is split into three sections: i) UK Highlights (key UK sectoral and company developments in the last week); ii) Irish Highlights (key Irish sectoral and company developments in the last week); and iii) Global / European Highlights (select key developments in a Global / European context).
I want to wish all of my readers a very happy Christmas! The next issue of Financials Unshackled will hit your inboxes on 31st December and will contain a wrap of any significant news developments / articles that emerge over the Christmas period.
UK Highlights
Motor Finance Updates
The High Court found in favour of the Financial Ombudsman Service (FOS) in a review of its decision to uphold a complaint relating to a discretionary commission arrangement (DCA) in a motor finance agreement on Tuesday 17th December - dismissing all three grounds of appeal brought by the lender, Barclays Partner Finance (BARC) (you can read the judgment here). The FCA response on the same day (read it here) neatly summarises the judgment, noting: “The Judge found that the Financial Ombudsman had interpreted our rules and the Consumer Credit Act 1974 correctly when deciding that the lender and car dealer involved in this case did not meet the relevant standards in place at the time. The Financial Ombudsman was entitled to find that the dealer and the lender did not adequately disclose their commission arrangements to the borrower and that the relationship between the lender and the borrower was unfair in those circumstances.” - with the FCA noting that it welcomes the additional clarity that the judgment brings to DCA complaints. It was widely reported in the media in the aftermath of the judgment that Barclays (BARC) is disappointed with the outcome of the judicial review and has noted that it plans to appeal the ruling. This was a very specific case which saw the High Court noting that a motor dealership’s decision to charge a customer a higher interest rate of 4.67% while BARC was willing to lend at 2.68% was inadequately disclosed in the Initial Disclosure Agreement (IDD) with just “threadbare statements”. While stock analysts have been quick to note that there is no meaningful readacross for the wider motor finance lending industry - whose fate lies in the hands of the Supreme Court and the FCA - it does, however, provide a marker in terms of what does / doesn’t constitute adequate disclosure and the bar appears to be clearly higher than what BARC had been hoping (and the judgment will clearly inform the FCA’s thinking in respect of its own investigation). So, no doubt then, lawyers for all relevant lenders will be poring over the judgment to gauge what it could mean for their assessment of their client’s potential exposures in a disclosure context. That said, to reiterate, BARC intends to appeal the judgment so we’ll have to see where that ends up.
I reported in Financials Unshackled Issue 21 that the FCA was consulting on proposals to extend the time that firms have to respond to motor finance complaints where a non-DCA was involved (see here). The two options were: i) until 31st May 2025; and ii) a longer extension until 4th December 2025, to align with the current rules for motor finance firms dealing with DCA complaints. The FCA, on Thursday 19th December, issued a statement confirming that it has plucked for the later date, extending the time firms have to respond to complaints about motor finance agreements not involving a DCA until after 4th December 2025, in line with the extension that the FCA has already provided for complaints involving DCAs. You can read the FCA Statement here, the Policy Statement PS24/18 here, the regulator’s expectations of motor finance firms in terms of customer communications here, and updated information for firms affected by the FCA’s work on the use of commissions in the motor finance industry here.
Mortgage Market-related Updates
A few items to highlight in a UK mortgage market-related context:
Rightmove’s latest UK mortgage pricing update from Saturday 21st December shows that mortgage pricing was unchanged week-on-week with both average 2Y and 5Y fixed rates unchanged at 5.07% and 4.81% respectively (-37 bps y/y and -22bps y/y respectively). There has been a spate of rate reductions recently which is not uncommon for the time of the year - and it is also not uncommon for rates to stabilise as we get closer to the Christmas break (as we see in this data). The new year typically brings a fresh set of promotional reductions and how things evolve from there will depend heavily on how swap rates move (with 2Y swap rates sitting at 4.49% at the time of writing, +8bps week-on-week - and 5Y swap rates sitting at 4.27% at the time of writing, +7bps week-on-week). You can read the update here.
UK Finance issued its mortgage market forecasts for 2025 and 2026 together with its projections for full year 2024 numbers last week. In short, the industry body expects gross lending to surge by 11% y/y in 2025 (up from +4% y/y in 2024) to £260bn, supported by a gradual improvement in mortgage affordability as rate and cost-of-living pressures continue to subside - with more modest growth of +3.8% y/y (to £270bn) estimated for 2026. UK Finance also expects that arrears will fall further in 2025 (-5% y/y from -3% y/y in 2024). It expects BTL lending to contract modestly (-7% y/y to £9bn) in 2025. You can read the key highlights here and the document in full here.
The Intermediary Mortgage Lenders Association (IMLA) issued a much more bullish outlook for 2025 and 2026 - noting that it expects gross mortgage lending to hit £275bn in 2025 (+16% y/y) and £295bn in 2026 (+7% y/y), supported by lower base rates and a higher rate of refinancing. It also forecasts a rise in BTL lending to £38bn in 2025 (+14% y/y) and £42bn in 2026 (+11% y/y), supported by improved affordability. The IMLA also observes that the share of lending conducted through intermediaries has been on an upward trajectory in recent years but notes that the rate of growth has slowed slightly - and now expects that it will be 2026 before intermediaries begin to account for >90% of lending. You can read the IMLA outlook here.
Hometrack published its UK House Price Index 2024 this morning which shows that house price inflation was +1.9% y/y in the 12 months to end-November 2024. It is also notable that Hometrack reported that the pipeline of sales working to completion is the largest that it has been in 4 years - 283,000 sales worth £104bn + 30% y/y. Access the report here.
The ONS published its monthly private rent and house prices data on Wednesday last - noting that average UK private rents were +9.1% y/y in the 12 months to November 2024 while average UK house prices increased by 3.4% over the same period (read the update here).
Hamptons reported last week that its analysis of sales agreed in November indicates that the significant 2pps increase in the stamp duty surcharge on second homes to 5% effected in the 30th October Budget has had a limited impact on landlord behaviour thus far - with sales to landlords accounting for 10.7% of sales agreed in the month, above the 2024 average to date of 10.2%. You can read the note here. Notably, Mortgage Solutions reported on a Landbay landlord survey which reportedly found that almost half of landlords said they thought more tenants would remain in the private rented sector (PRS) or rent for longer because the stamp duty thresholds are reverting to their pre-2022 levels (article here) and Landbay’s own review of 2024 noted the resilience of the BTL sector heading into 2025 (read it here).
The outlook for house prices is in much focus ahead of the new year. The Observer published a useful summary on what various agents are predicting for 2025 on Saturday 21st December (read it here) noting that consensus expectations amongst agents and economists are for house price growth of 2-4% in the year ahead. If you’re interested in reading further on this topic then Nationwide’s House Price Review and Outlook for 2025 can be accessed here and Richard Donnell of Hometrack’s blog on the Building Societies Association (BSA) website can be read here.
All in all the outlook for house prices and mortgage market activity for 2025 appear to be constructive in a lending growth and asset quality context for the UK mortgage lenders - consistent with the sentiments expressed by the bank executives themselves in recent months.
Other UK Sectoral Snippets
Moneyfacts reported last Monday that easy access savings rates have continued to fall in December (with the average easy access rate falling to 2.95% in December, -8bps m/m), average fixed rates on 1Y bonds fell by 6bps m/m to 4.18% in December, while average fixed rates on longer-term bonds nudged up slightly. Access the update here.
UK Finance published its monthly Card Spending Update for September 2024 on Tuesday last noting that credit card spend in the month of £21.5bn was +9.5% y/y. Access the update here.
The Standard reported last week that ShareAction, the responsible investment campaigner, has written to the CEOs of 20 large European banks (including a number of UK banks) calling on them to set climate targets based in science for 2024 to show how they are funding sectors crucial for the net-zero transition. Read the article here.
The FCA published its Discussion Paper DP24/4 seeking feedback on its plans to improve the transparency of the UK’s crypto markets on Monday last (read the statement here and access the DP here).
In case you missed it the BoE MPC voted 6:3 in favour of maintaining the base rate at 4.75% on Thursday last. The Monetary Policy Summary and minutes of the MPC Committee meeting can be accessed here.
UK Public Company Updates
Bloomberg reported on Wednesday last that BARC is set to increase annual bonuses by as much as 20% in its investment bank while staff in its trading unit are expected to see a 5-10% y/y uplift in bonuses (read the article here). eFC reported on Friday that, according to BARC staff responses to the eFinancialCareers Bonus Expectation Survey, “a mere 20% would have felt like an insult; Barclays were toward the top of the range at 47%” (read the piece here).
Close Brothers Group (CBG) issued a RNS this afternoon noting that ABRDN’s shareholding in CBG has reduced to 9.87% (previously disclosed shareholding: 10.20%) following a transaction on Friday 20th December.
Funding Circle Holdings (FCH) issued a RNS on Wednesday last announcing the appointment of Ken Stannard as NED and Chair Designate with effect from 1st January. Stannard brings extensive experience in credit, lending and payments to bear - having held senior executive roles at Lloyds Banking Group (LLOY), Capital One and American Express over the course of his near 30-year career. The RNS also noted that NED Matthew King will step down from the Board on 31st December. Access the RNS here.
HSBC (HSBA): 1) It was widely reported in the media early last week that the Australian Securities and Investments Commission (ASIC) is suing HSBA for “widespread and systemic failures” in protecting customers against scammers. Read the ASIC media release here. 2) Reuters reported on Thursday last that HSBA Chairman Mark Tucker will lead the British Government’s most critical business delegation to China since 2018 (read the article here). 3) HSBA issued a RNS on Monday last noting that NED Brendan Nelson acquired 15,000 shares in the bank at an average price of 758.6p per share on Thursday 12th December - for an outlay of c.£114k.
Metro Bank (MTRO) announced on Thursday last the appointment of Paul Cody as an independent NED with effect from 30th December. He has extensive experience of digital and technology transformation. Read the RNS here.
Sky News broke the story last Monday that David Lindberg will step down as CEO of Retail Banking at NatWest Group (NWG) in 1Q25, with a source noting to the newspaper that a successor will be appointed in due course (read the article here). 2)
OSB Group (OSB): 1) OSB published a RNS on Wednesday last noting that Norges’ shareholding in the bank increased to 4.10% (previously disclosed shareholding: 3.89%) following a transaction on Tuesday 17th December. 2) OSB published a RNS this afternoon noting that GLG’s shareholding in the lender has risen to 5.68% (previously disclosed shareholding: 5.14%) following a transaction on Friday 20th December.
Paragon Banking Group (PAG) published a RNS on Friday last noting that BlackRock’s shareholding in the lender increased to 5.00% (previously disclosed shareholding: <5%) following a transaction on Thursday 19th December.
Secure Trust Bank (STB) published a RNS on Wednesday last noting that Ameriprise’s shareholding in the lender fell to 4.98% (previously disclosed shareholding: 9.57%) following a transaction on Wednesday 11th December. STB issued a RNS this afternoon noting that UBS AM has amassed a shareholding of 5.39% in the lender (previously disclosed shareholding: nil).
Standard Chartered (STAN) published a RNS on Monday last noting that Norges’ shareholding in the lender increased to 3.00% (previously disclosed shareholding: 2.996%) following a transaction on Friday 13th December.
UK Private / Other Company Updates
Allica Bank issued a press release on Wednesday last noting that its business lending balances grew to >£3bn in November (a 64% increase in the YTD, with £1bn of new lending achieved for the YTD during October) and deposits grew to £4bn in November (up from £2.6bn at end-FY23). Read the release here.
Chase Bank UK continues to push for deposits growth, boosting its easy access rates to 5% with a new 1.5% bonus rate on top of the headline rate of 3.5% (see here for a This Is Money article on the development).
Coventry Building Society issued a RNS on Wednesday last noting that Caroline Marsh (who also sits on the Board of Lowell) will join its Board as a NED on 3rd January. Read the RNS here.
The FT reported on Monday last that Revolut staff and early investors have sold almost $1bn of stock in the company since August - in particular, early VC investors are understood to have disposed of c.$500m of stock (read the article here). Bloomberg separately reported on Friday that Revolut’s European unit faces the highest individual capital requirement (ICR) set by the ECB for significant lenders in the region with a Pillar 2 Requirement (P2R) of 3.7% of its risk-weighted assets (RWAs) versus the average of 2.3% (read the article here).
Irish Highlights
CBI - Trends in SME and Large Enterprise Credit and Deposits, Q3 2024
The Central Bank of Ireland (CBI) published its quarterly ‘Trends in SME and Large Enterprise Credit and Deposits’ for 3Q24 on Monday 16th December (access it here). The key findings to highlight are:
Reduction in weighted average interest rate on SME drawdowns: The weighted average interest rate on new SME drawdowns (gross advances €1.1bn in the quarter, +14.4% y/y - though net lending was a negative €97m in the quarter) was 5.25% in the quarter, -24bps q/q and the lowest print since 4Q22 (5.23%).
Reduced weighted average interest rate on SME loan stock: The weighted average interest rate on outstanding SME loans (€18.2bn at end-3Q24, which was flat q/q) printed at 5.10% at the end of September, -12bps q/q - following the first quarterly reduction since 2021 in 2Q24 which saw the rate -7bps q/q.
Net lending to all Irish resident private sector enterprises expands again q/q in 3Q: Net lending to all Irish resident private sector enterprises was +€734m q/q in 3Q24 (following an increase of €546m q/q in 2Q24) to €1.3bn - taking annual net lending to +€951m in the year to end-3Q24.
Irish resident private sector enterprise deposits still in growth mode: 3Q24 saw deposit inflows of €4.6bn from all Irish resident private sector enterprises, up from the +€3.4bn increase recorded in 2Q. As an aside it was interesting to read today that Raisin calculates that Irish savers have lost out on €2.7bn by leaving their deposits sit at very low rates in the Irish banks - as reported in the Irish Independent today here.
In overall terms growth momentum is favourable though we are, unsurprisingly in view of the official rate backdrop, seeing some compression in rates.
Other Irish Snippets
The Central Bank of Ireland (CBI) published its latest update on ‘Residential Mortgage Arrears & Repossessions Statistics’ for Q3 2024 on Friday last (access it here). The number of permanent dwelling home (PDH) or owner occupier (OO) accounts in arrears >90 days remained flat q/q just 4% of all PDH/OO accounts, the lowest proportion since 4Q 2009 (notably, just 38% of PDH accounts in arrears are held by banks following intensive NPE remediation efforts since the GFC). Just 2.3% of accounts were in early arrears at end-3Q, down from 2.5% at end-2Q. 11.2% of outstanding BTL accounts (total outstanding BTL debt is just €8.2bn) were in arrears of >90 days at the end of June, trending downwards on both a q/q and a y/y basis. Nothing greatly surprising in any of this given the strong macro, low unemployment, and much-tightened risk management at an individual bank level.
The BPFI published its Mortgage Market Profile for 1H24 on Friday last (access the press release here and the report here). While we have up-to-date mortgage approvals and drawdowns data already this report provides excellent granularity on the mortgage market from a buyer and regional perspective. Key highlights are the considerable increase in median property values over the past five years and the upward shift in average home mortgage values.
The Central Bank of Ireland (CBI) issued a statement on Thursday last announcing the establishment of a dedicated Fitness and Probity unit, noting that it has accepted the findings of the July 2024 Enria report and has used them as a basis for implementing reforms to enhance the regime’s overall effectiveness. Read the statement here.
The Central Bank of Ireland (CBI) also published its last Quarterly Bulletin of 2024 on Tuesday last (access it here). The prognosis is positive for the Irish economy in the years ahead with modified domestic demand (MDD, a GDP proxy) growth expected to come in at 3.1% in 2025 (unchanged y/y) before falling to +2.3% growth in 2027, unemployment set to rise marginally to 4.5% in 2025 and then stabilise at that level, and inflation to remain contained (the CBI is forecasting a 1.7% inflation rate in 2025). There is also an interesting article within the bulletin on the evolution of the eurosystem operational framework and how recent changes may impact banks in Ireland - with the CBI acknowledging that, while Irish banks will need to adapt as excess liquidity leaves the eurosystem, it is likely that recourse to eurosystem standard refinancing operations by banks based in Ireland may come later than in some other jurisdictions due to the high levels of excess liquidity that Irish banks enjoy - which “may decline in Ireland at a slower pace than elsewhere”. Difficult to disagree with this assessment in view of the listed banks’ reported loans-to-deposit ratios.
Company News:
AIB Group (AIBG) Updates: 1) AIBG issued a RNS on Tuesday last noting that the State’s shareholding in the bank fell to 18.99% (previously disclosed shareholding: 19.99%) following a transaction on Friday 13th December. It appears that the State is on track for a full exit in 2025. 2) AIBG published a RNS on Thursday last noting the appointment of Morgan Stanley as joint corporate broker (presumably replacing J.P.Morgan though the RNS doesn’t specify that) alongside Goodbody. 3) The Irish Times reported last Tuesday that thousands of AIBG customers are set to receive refunds after the lender erroneously charged stamp duty for credit cards that had already been cancelled - the total cost is estimated at c.€900k according to the newspaper (10,000 customers with an average payout of €90) which is not material in a costs context more broadly but it does raise the question again around the strength of Irish banks’ systems to prevent things like this from happening in the first place.
Bank of Ireland Group (BIRG) Updates: 1) The Irish Times reported on Thursday morning that Ailmount, a company controlled by c.700 former Davy shareholders, has secured a €48m settlement from BIRG to resolve legal disputes between both sides and other matters (read the piece here). The reporter, Joe Brennan, noted that the result “is being seen as a significant victory for Ailmount”. 2) BIRG issued a RNS on Thursday last noting that Evelyn Bourke will retire as NED on 31st December having served on the Board since May 2018 (read the RNS here). Bourke had previously been seen as a top contender for the Board Chair role and her retirement from the Board represents a significant loss of top talent by all accounts. BIRG appointed Akshaya Bhargava as Chair and Governor on 30th September last and he will take up this new position on 1st January. 3) The Irish Independent reported on Thursday afternoon that BIRG said its systems are back working in full after yet another outage prevented some employers from paying their staff for a short period of time (read the article here). These outages are happening all too frequently and raise the question as to how well invested the systems are to cope with the inevitable pressures that will emerge from more nimble digital players in due course. I suspect that the new BIRG Chair will be constructive in this context given his extensive experience in both the fintech and emerging technologies domain (as well as wealth management and international financial services).
Global / European Highlights
Snippets:
The ECB maintained capital requirements broadly steady for 2025 (though with Pillar 2 Requirements (P2R) increasing slightly from 1.1% to 1.2%), according to its press release on the results of its 2024 SREP process on Tuesday last. I already reported on AIB Group’s (AIBG) and Bank of Ireland Group’s (BIRG) SREP results and revised capital requirements in Financials Unshackled Issue 24 last week, which you can access here. The ECB press release is here, a replay of the SREP press conference can be viewed here with a transcript here (and, notably, Claudia Buch noted: i) that the ECB is set to trial an accelerated approval process for SRTs in 2025 - Bloomberg article on this here too; and ii) that the ECB will apply a the Danish compromise on a “case by case” basis - Reuters article on this here too and I was also delighted to contribute in detail to a recent article in The Insurer on this topic which you can read here), the aggregated results can be studied here, and the ECB’s Supervisory Priorities for 2025-27 can be located here.
Bloomberg has reported this afternoon that the ECB is set to crack down on lenders that are slow to deal with the supervisory measures that the ECB issues to them (read the article here), which chimes with the following remark extracted from the aforementioned Supervisory Priorities for 2025-27 document: “The progressive shift in focus from risk identification to risk remediation is an essential feature of the SSM-wide supervisory strategy”.
Andrea Orcel, CEO of Unicredit, penned a piece in the FT on Friday last noting that Unicredit’s ambition to acquire Commerzbank is a real test of whether European policymakers can get their act together and deliver banking union (read it here). I opined in a Business Post article of 15th December (read it here) that: “While the Unicredit board likely sees a takeover of Commerzbank as a potentially value-enhancing transaction, it is also possible that the entire stake-building exercise was orchestrated in a bid to prompt European policymakers into action to address the impediments to cross-border consolidation. The top brass at the ECB have been signalling support for large European bank mergers for some time and Unicredit’s move is, arguably, an attempt to call their bluff. So, it’s over to the ECB to see if it has the wherewithal to work effectively and expeditiously with member states to achieve its objectives or whether policymakers’ words amount to nothing other than rhetoric.”. Orcel’s op-ed rather unsurprisingly confirms this - and it is intelligently crafted by playing on fears prevailing in relation to EU disunity before pushing for reforms including the “convergence of our banking system” as an important plank in avoiding the “slow agony” for Europe that Mario Draghi recently warned about. It’s also worth reading Paul Davies’ opinion piece in Bloomberg today on European banking M&A - get it here.
The European Banking Authority’s (EBA) Q3 2024 Risk Dashboard was published on Wednesday last and shows that bank profitability has continued to improve modestly while asset quality remain stable. Access the report here.
The Wall Street Journal reported last week on BoA’s latest monthly global fund manager survey which reported that investors’ allocation to financials stocks climbed to an all-time high in December +23pps m/m to a net 41% overweight. Separately, the FT picks up this afternoon on how UK banks were amongst the best-performing UK stocks in 2024 - you can read it here.
Excellent FT Alphaville piece on SRTs from Friday last which can be accessed here, which picks up on the concerns in relation to leverage upon leverage (amongst other factors) in the context of these transactions - but contextualises the concerns given “it’s still a modest market”. There was also a useful educational piece on the economics of SRTs on the Bank Policy Institute website from last Tuesday which you can access here.
The Financial Stability Board (FSB) published its annual Global Monitoring Report on Non-Bank Financial Intermediation (for 2023) on Monday last. The size of the non-bank financial intermediation (NBFI) sector grew by 8.5% in 2023, more than double the pace of banking sector growth (+3.3%), raising NBFI’s share of total global financial assets to 49.1%. The report observes that most NBFI vulnerability metrics remained stable in 2023. You can access the press release here and the report here. Separately, the FSB published a consultation report on leverage in NBFIs on Wednesday last (access it here) - this report is well worth a read and sets out the FSB’s concerns in the context of interlinkages with systemically important financial institutions in Section 2.4.
Bloomberg reported on Wednesday last that Bruce Richards, CEO of Marathon Asset Management, expressed his view that he believes the “…Basel III endgame is dead” - expecting that Trump’s administration will look to ease the regulatory burden on banks. Read the piece here.
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