Financials Unshackled Issue 38: Week In Review (UK / Irish / Global Banking Developments)
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Welcome to the latest issue
Welcome to Financials Unshackled Issue 38. This ‘Week In Review’ includes: i) a calendar for the week ahead; ii) analysis on select key developments in a UK / Irish /Global context from the last week; and iii) snippets flagging other select newsflow together with links to the stories. As usual, please email me at john.cronin@seapointinsights.com if you have any feedback.
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Calendar for the week ahead
Tue 18th Mar (07:00 BST): Close Brothers Group (CBG) 1H25 Results (for the six months to 31st Jan 2025)
Tue 18th Mar (09:00 BST): Metro Bank (MTRO) General Meeting
Tue 18th Mar (09:00 BST): UK Finance Regional Mortgage Market Forecasts
Tue 18th Mar (09:00 BST): Lloyds Banking Group (LLOY) CEO Fireside Chat at Morgan Stanley European Financials Conference
Tue 18th Mar (10:00 BST): NatWest Group (NWG) CEO Fireside Chat at Morgan Stanley European Financials Conference
Tue 18th Mar (13:00 BST): Barclays (BARC) Finance Director Fireside Chat at Morgan Stanley European Financials Conference
Tue 18th Mar (15:30 BST): Secure Trust Bank (STB) Investor Presentation
Wed 19th Mar (00:00 BST): Central Bank of Ireland (CBI) Quarterly Bulletin - Q1 2025
Wed 19th Mar (11:00 BST): Standard Chartered (STAN) CFO Fireside Chat at Morgan Stanley European Financials Conference
Thu 20th Mar (07:00 BST): Investec (INVP) FY24 Pre-Close Briefing
Thu 20th Mar (12:00 BST): Bank of England (BoE) Monetary Policy Summary & Monetary Policy Committee Meeting Minutes
Key Newsflow
UK (1): FCA announces next steps on Motor Finance Review
The Financial Conduct Authority (FCA) published a statement on next steps in relation to its ongoing Motor Finance Review on Tuesday morning here. The statement notes that “…if, taking into account the Supreme Court's decision, we conclude motor finance customers have lost out from widespread failings by firms, then it's likely we will consult on an industry-wide redress scheme”. The FCA is therefore no longer planning a further announcement in May and will instead confirm within six weeks of the Supreme Court’s decision if it is proposing a redress scheme and, if so, how it will progress that. The regulator further notes that, depending on the Supreme Court’s decision, it may also separately consult on changes it its rules.
Under a redress scheme, firms would be responsible for determining whether customers have lost out due to the firm's failings. If they have, firms would need to offer appropriate compensation. It would be a simpler process for consumers and would obviate the need for customers to use claims management companies (CMCs) - notably, almost 80% of fresh claims in the wake of the Hopcraft judgment have been submitted by CMCs (per recent FOS data). They have already been widely used in the UK and the straightforward streamlined nature of the redress scheme approach typically means a swifter resolution process than alternative mechanisms (e.g., complaints via CMCs, direct complaints, class action lawsuits, etc.) though it can potentially be more costly for the affected firms.
The market reaction was relatively muted as this is hardly a great surprise. There appears to be a strong government-sponsored push to reduce the role of CMCs more broadly (see Financials Unshackled Issue 19 here, for example). Ultimately the FCA’s own rules were softer than the bar implied by the Court of Appeal’s Hopcraft judgment in late 2024 and all now rests on the outcome of the Supreme Court appeal hearings (due to be held over the 1st through 3rd April period). If the ruling is upheld (it typically takes in the region of three months to learn of the Supreme Court’s decision though I suspect it could be faster in this case) then this will come at a significant cost for the lenders, with material further top-ups to provisions (to varying extents) highly likely to be necessary. If not, then the FCA will determine the parameters which will dictate whether and to what extent a customer is entitled to receive compensation in accordance with its pre-existing rules - most likely via a redress scheme, as it confirmed on Tuesday. To the extent that the Supreme Court overrules the Court of Appeal’s judgment (which is my expectation), my sense is that the FCA will indeed quickly move to establish a redress scheme but, given the broader push for looser regulation as well as a recognition at the highest levels of government that this whole saga undermines the investibility of the UK, my gut is the FCA will go as soft as it can (within the tramlines of ‘political acceptability’) on the banks in terms of the specific parameters of the redress scheme.
On a final note for now, it was also noteworthy to read within the FCA’s statement that the FCA was granted permission to intervene in the case and has filed its submission with the Supreme Court. It always seemed to me unlikely that the judiciary would entertain Treasury’s request to intervene as it would likely have resulted in accusations of compromised independence of the judiciary and the executive (irrespective of the reality) and, while it is not surprising to see the Supreme Court has granted the FCA permission to intervene, it is a relief that the FCA will indeed get an opportunity to explain to the Court why it designed its own rules in the manner in which it did.
For further reading, I suggest this detailed Compliance Corylated article, this FT article, and this Bloomberg article - all from Tuesday 11th March. Sky News also ran an ‘Explainer’ piece for potentially affected customers on Wednesday here and Motor Finance Online featured an opinion piece penned by Jack Nicholls of Aptean Respond, a specialist complaint management and remediation software provider, on Friday here.
Finally, it’s also worth reading Patrick Jenkins thoughts in the FT (from last Monday here) on how the Supreme Court decision (irrespective of which way it goes), along with a few other expected regulatory changes, could be - by breaking the cloud of uncertainty looming over the heads of many players in the sector - a stimulant for further UK M&A activity. It’s certainly all the talk in the City these days and there is merit in this argument in my view. Stay tuned for some thoughts from Financials Unshackled in the coming weeks on who might be tempted to pounce for who and why.
UK (2): OSB Group publishes FY24 results and presents Investor Update
OSB Group (OSB) published preliminary FY24 results for the 12 months to 31st December 2024 on Thursday 13th March followed by an 8am BST results presentation (results here, slide deck here, and webcast replay link here). The group also published an Investor Update (slide deck here) which it presented at 10am BST (webcast replay link here). In short, the results and the update were well received by the market.
On the results, underlying (u/l) Profit Before Tax (PBT) was +4% y/y to £442.9m, reflecting: i) u/l Net Interest Margin (NIM) of 230bps, at the low end of guidance for 230-240bps (note that statutory interest income was +18.8% y/y but statutory interest expense was +29.3% y/y); ii) core costs were +3% y/y, resulting in a u/l Cost Income Ratio (CIR) of 37% (slightly above guidance for c.36%); and iii) an u/l ECL writeback of 5bps (following a 4bps writeback in 1H24 and a small further release in 3Q24). The reported u/l RoE was 15.6% but this was suppressed by a material surplus capital position (inflating the denominator), with OSB reporting an end-FY24 CET1 capital ratio of 16.3%, far above minimum regulatory requirements and in excess of its own retained toppy 14% target. OSB also announced a further £100m buyback and a full year dividend per share (DPS) of 33.6p (FY23: 32.0p) reflecting a 40% payout ratio. It’s also worth noting that u/l net loan growth was 2.5% (stripping out the impact of the £1.25bn securitisation and deconsolidation transaction effected in December) was in line with guidance.
I would encourage anyone interested in this name to watch the replay of the Investor Update session as it was a great tour through how management expects to remain focused on: i) its specialist lending focus, leveraging its intermediary relationships; and ii) further transforming its unique operating model (incl. OSB India) to deliver improved returns - with an improving NIM post-FY26 and widening cost jaws the key underpins. Indeed, I reflected particularly on the former (i.e., medium-term NIM accretion prospects) when I recently spoke at length on OSB on MOI Global’s Lattice work podcast available here. Ultimately the market reaction was warm and near-term delivery will likely further cement confidence in the story. The following slides sourced from the deck are the most noteworthy in relation to the hard targets:
I have been following OSB very closely since 2016. My view is that, despite a few hiccups, it has been a very well-managed bank. If there is any interest amongst readers in an extensive piece of work on the markets in which it operates and bull / bear case medium to longer-term financial prospects then shoot me an email.
As a final parting thought, the investor update surely also highlights to prospective trade acquirers the unique operating efficiency capabilities of the group.
Ireland (1): CBI data points to constructive lending & deposit volumes and pricing conditions
The Central Bank of Ireland (CBI) published its monthly Retail Interest Rates update for January 2025 on Wednesday 12th March. Click here to read the release (and to get links to all the data). All in all, the data point to pretty favourable lending volume and pricing conditions for the banks again - with Ireland creeping back up the eurozone-wide charts in a mortgage pricing context and with continued strong growth in deposit balances on a y/y lookback. Key points:
The weighted average interest rate on new Irish mortgage agreements at end-January was 3.82% (+2bps m/m, -45bps y/y) - and average rates are now 46bps higher than the euro area average (45bps higher at end-December), though 5th highest in the euro area for mortgage originations pricing (up from 7th at end-December). I have recently expressed my strong view to the effect that Irish banks will seek to recoup some loan spread in a mortgages context as official rates continue their descent - and that remains my opinion. So, I expect the gap to the euro area average will widen (competitive forces are still constrained) and I expect the Irish banks to climb further back up the charts over 2025 - though, as previously noted, not right back up to the top or 2nd position with that said (as it could generate political heat, especially once the government has fully divested of its shareholding in AIB Group (AIBG)).
The volume of new mortgage originations was +25% y/y in January to €677m, following +19% y/y growth in December and +13% y/y growth in November (renegotiated agreements were +59% y/y to €226m in January. Outstanding mortgage stock stood at €86.0bn at end-January, +2.3% y/y.
Fixed rate mortgages represented 73% of the volume of new mortgage agreements in December (down from 75% in December) with standard variable rate agreements comprising the residual 27%.
The interest rate on new consumer loans reduced by 49bps y/y (-81bps m/m) to 6.87% in January, 77bps lower than the euro area average. The total volume of new consumer loans was €287m in January, +8.7% 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 €18.0bn at end-January, +2.3% y/y.
New NFC (non-financial corporate) borrowing of €988m in January was +18% y/y but the data is notoriously choppy m/m. The weighted average interest rate on new lending was -96bps y/y / -51bps m/m to 5.05% in January (which was 93bps ahead of the average euro area equivalent rate of 4.12%). Outstanding NFC loan stock stood at €57.0bn at end-January, -0.4% y/y.
The average rate on household overnight deposits was unchanged at 0.13% in January while the average rate on NFC overnight deposits was -1bp m/m at 0.10%. The majority of listed Irish banks’ customer funding sits in current accounts and other overnight product 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 -17bps m/m to 2.28% (-23bps y/y) and +4bps m/m to 2.36% (-100bps y/y) respectively in January. The corresponding average euro area rates were 2.34% for new household agreed maturity deposits and 2.66% for new NFC agreed maturity deposits. It is also worth noting that an article in The Irish Times (in response to the update) on Wednesday noted that Rachel McGovern of Brokers Ireland has hit out at government for standing idly by while depositors earn virtually nothing for their savings: “The Government should immediately introduce the recommendations of its own Funds Sector Review to enable consumers get a better return on their money and remove the massive tax disincentives that keep them defaulting to bank deposits with very poor outcomes”. I think it would be wise to assume that nothing will change in the relative near-term - it’s not like there is a meaningful focus on ‘consumer duty’ like the UK / any apparent appetite for developing initiatives like the Current Account Switch Service (CASS) in the UK as it suits the vested interests to see strong profitable banks for multiple reasons. Keeping bank branches open seems to be more important! It’s a shame for anyone who wants to save to buy a house - though, that said, Irish household savers are notoriously inert too and take-up of much higher-priced available term product from the domestic banks has been extremely limited (and ‘flow to term’ or ‘deposit churn’ has now slowed considerably).
The total stock of deposits stood at €233.6bn at end-January (household €163.2bn (+€1.8bn m/m), NFC €70.5bn (-€2.5bn m/m)), -0.3% m/m and +3.6% y/y.
For more granularity on trends in SME and Large Enterprise Credit and Deposits for 4Q24, the CBI published its quarterly update for 4Q24 here on Friday last.
Global (1): Strategic moves by UniCredit sparks some high-level thoughts on how EU banking consolidation might play out in the long-term
UniCredit recently announced two small acquisitions, i.e., the purchase of Aion Bank and Vodeno for an aggregate consideration of €376m (press release here). However small they may be, these acquisitions collectively represent a deeply strategic move by UniCredit - which already runs an efficient ship under its visionary chief Andrea Orcel - in my view.
The following excerpt from the press release is telling: "Through the combined capabilities of Aion Bank and Vodeno, UniCredit now has access to an innovative, scalable, and flexible cloud-based platform, based on API connectivity and with smart contract technology built in - all of which can be integrated with the processes and procedures of a fully-fledged bank. This is the foundation for a digital offering that combines the high-quality user experience of a neo-bank with the financial strength and regulatory oversight of a traditional player.".
A fully-fledged eurozone Banking Union is likely to become a reality at some point in the future. Banks like UniCredit aren't hanging around and are working hard to develop a competitively advantaged efficient banking operating model that will likely deliver the ability to sustainably and materially outearn traditional peers with the test of time. To the extent that UniCredit can significantly leverage the capabilities that these acquisitions bring (alongside its ongoing investment programmes) it should be well positioned to compete with the likes of a Chase, which is a digital bank initiative inside a traditional bank (JPM) with seemingly enormous ambitions.
Orcel himself has spoken about the operating efficiencies (in particular) that Banking Union could facilitate in terms of cross-border synergies. Indeed, he has not been shy about his ambitions for UniCredit in this vein. This playbook (i.e., become a key player in several jurisdictions while capturing the efficiency benefits of substantive investment in core systems) to: i) offensively press on the incumbents who don’t invest to the same extent or think about M&A beyond domestic borders; and ii) defensively guard against the risk that traditional banks as a collective could be outgunned by more nimble digital-only players (e.g., Chase, Revolut, Monzo) / other aspiring cross-border consolidators makes a lot of sense in my view. UniCredit is not the only bank thinking like this but most aren’t - and not all have the access to capital to make it happen. It feels like banks like UniCredit will still, typically, seek to acquire an incumbent as the platform for expansion in each new jurisdiction it enters (though others like Bankinter appear to be focusing more on organic expansion efforts - for now at least). This puts the spotlight on those weaker mainstream challenger institutions (e.g., Santander UK / TSB / a building society in the UK, PTSB in Ireland) as potentially ideal acquisition entities of choice (lower price to acquire, more scope to re-platform, etc.). Lots of potential permutations here but some food for thought. Could some of the weakest become the strongest by default?
As I have written before, operating efficiency will be where the game is won and lost on a long-term view in my opinion. Indeed, to quote the Lloyds Banking Group (LLOY) COO at the recent MoneyLIVE Summit in London (extracted from The Wall Street Journal): “The U.K. is looking for growth and for that we need a very efficient, modern and innovative platform for financial services, not just for payments–this applies to mortgages, it applies to financial markets…If we don’t lead this transformation, we lose relevance, and that’s a big message for every one of us”. Those who neglect to invest sufficiently today will pay the price in due course. It’s a long game.
Snippets
Other UK News
Excellent ‘Big Read’ piece in the FT from Tuesday last here on how Revolut and Monzo are seeking to crack the US market. Lots of focus on how achieving success in the US market requires a radically different approach to that adopted by the neobanks in their home and other territories. One interesting point was the Monzo CEO TS Anil’s remark that US customers’ “…needs are being met in disparate places…They don’t see a full view and can’t make great choices across everything and can’t actually budget effectively”. While this might not be something the customer says that they want, Eileen Burbidge, Monzo NED makes the astute observation that “Innovative companies are always predicated on the principle that consumers don’t yet realise what good can look like”. Indeed, I would also add that it will be interesting to see - in time - whether CapitalG’s (investor in Monzo) investment in Stripe can present any angles for Monzo and vice versa.
Rightmove’s latest update on UK mortgage rates from Saturday 15th March here shows that average 2Y and 5Y fixed rates both increased by 6ps last week (to 4.90% and 4.74% respectively) last week - while 2Y and 5Y swap rates were broadly flat over the same period. It is not surprising to see rates nudge back up as mortgage spreads have compressed significantly in recent weeks particularly.
The Bank of England (BoE) published its quarterly Mortgage Lenders and Administrators Statistics for Q4 2024 (i.e., the three months to 31st December) on Tuesday last (access the publication here). Key findings: i) the outstanding value of all residential mortgage loans grew by 0.5% q/q (down from +0.6% q/q in 3Q) and 1.3% y/y, a function of strong growth in advances which were +4.9% q/q and +29.9% y/y; ii) the value of new mortgage commitments was +4.9% q/q to £69.3bn, though was +50.7% y/y; iii) the proportion of lending to borrowers with a high LTI increased by 0.5pps q/q to 45.8%; iv) the share of lending to first-time buyers (FTBs) was +0.3pps q/q to 29.6%, the highest share since reporting began in 2007; and v) the value of outstanding mortgage balances in arrears increased by 1.3% q/q to £22.1bn (+8.4% y/y, down from +17.7% y/y at end-3Q) with the proportion of total loan balances with arrears remaining at 1.3% at end-3Q.
UK Finance published its Business Finance Review for 4Q24 on Thursday last here. 2024 saw signs of increased lending activity to SMEs by the main high street banks with gross lending +13% y/y to >£16bn in 2024. This is consistent with the trends called out by the various mainstream banks in their regular earnings updates of late.
It’s well worth reading an article on the fast-growing Allica Bank in The Banker from Friday 14th March here. Allica, under its CEO Richard Davies, has strategically built a novel proprietary-driven technology model with deep engineering capabilities to muscle in quickly on capturing decent share in the underserved SME lending market - with its efficient operating model conducive to strong returns capability. It is a fascinating business going from strength to strength and one that international banking sector observers should keep a close eye on.
Barclays (BARC) published its Prospectus for its Debt Issuance Programme here and its Information Memorandum for its AUD Debt Issuance Programme here on Tuesday last.
Investec (INVP) issued a RNS on Wednesday 12th March noting that Coronation Fund Managers’ shareholding in INVP reduced to 2.88% (previously disclosed shareholding: 3.91%) following a transaction on Tuesday 11th March.
The Wall Street Journal reported on comments made by Lloyds Banking Group’s (LLOY) Group COO, Ron van Kemenade, at the MoneyLIVE Summit in London. As those who track LLOY closely will know, it has been investing heavily in AI and the COO spoke on the benefits it expects to reap in time (as an aside, it was interesting to read an article on Bloomberg here reporting that AI has replaced sustainability as the latest buzzword for European banks - though I would encourage any observer to pore very carefully over the words that management uses when describing its AI initiatives / use cases as the trained eye will quickly see that some (clearly not LLOY’s innovative leadership team!) are clearly nowhere in this respect and are completely bluffing about the degree to which they are advanced), i.e.: i) improved interactions between staff and customers; ii) improved operating efficiency in both a back office and an end-to-end processing context; and iii) assisting engineers to be more efficient when coding. He also gave some colour on the challenges that traditional large organisations face when seeking to pursue transformation initiatives - emphasising that internal bureaucracy rather than adapting the processes themselves is where the real challenge lies. Not likely to be news to any bank Board but it is the effective ones that can push through change at pace, cutting through the bureaucracy as appropriate- which is what the LLOY CEO Charlie Nunn and his top team have pushed as far as I can see since his elevation to the top seat in August 2021. While banking is categorically not a ‘move fast and break things’ industry, those who manage by consensus or who are just downright slow at ‘seeing around corners’ are destined for failure in the long-run (or, perhaps, mediocrity if local regulatory barriers keep outside competition at bay).
Indeed, Lloyds Banking Group’s (LLOY) CEO of Consumer Relationships Jayne Opperman also commented on how AI could change the way in which consumers bank at the same summit, with The Wall Street Journal quoting her as follows: “When we look ahead and we map out our future transformation road maps, smartphones and apps may no longer be the future. With the increasing use of AI and voice activation, the future is much more likely to be a personal advisor in your pocket”.
Lloyds Banking Group (LLOY) announced on Monday 10th March that Andrew Walton (Chief Sustainability Officer and Chief Corporate Affairs Officer) disposed of 754,736 shares in LLOY at an average price of 72.5p per share (for gross proceeds of almost £550k on Friday 7th March.
Metro Bank (MTRO) announced on Tuesday 11th March that Paul Coby (NED) acquired 22,480 shares in MTRO at an average price of 86.9p per share (for a total outlay of almost £20k on Monday 10th March.
Nationwide Building Society announced on Tuesday here that it is providing a one-off discretionary payment of £50 to over 12 million Nationwide members, referred to as “The Big Nationwide Thank You”. This equates to a distribution of >£600m, equivalent to a c.55bps reduction in the Group CET1 capital ratio of 19.5% (as at 31st December) and a 13bps reduction in the Group’s leverage ratio of 5.2% (at the same date). The distribution reflects the ethos of Nationwide’s business model, i.e., a focus on rewarding its members and has undoubtedly been welcomed by the many beneficiaries - serving to further strengthen customer loyalty.
The Wall Street Journal picked up on comments made by Solange Chamberlain, Group Director, Strategic Development at NatWest Group (NWG) during a panel discussion at the MoneyLIVE Summit in London recently - at which she noted her optimism in relation to the opportunities for growth for NWG as well as highlighting the competitive strengths presented by a high-quality regulatory regime.
NatWest Group (NWG) issued a RNS on Friday 13th March noting that the Treasury’s shareholding in NWG reduced to 4.82% (previously disclosed shareholding: 5.93%) following a transaction on Wednesday 12th March.
The Currency published a piece on Revolut here following the UK CEO Francesca Carlesi’s appearance at the MoneyLIVE Summit in London on Monday last (also covered in Tech.eu here). Carlesi noted that Revolut wants to “…move from being a disruptor to being the primary banking partner” without losing its identity. In the context of achieving its aims, the bank’s three key focus areas will be: i) building trust; ii) broadening its product range; and iii) strengthening is security and safety capabilities. Of course these are the key challenges that Revolut faces and are not capable of fixing overnight. But it would, in my view, be churlish to discount the disruption that Revolut could bring in the longer-term. Indeed, I would repeat that Carlesi seems to be a ‘safe pair of hands’ (as well as a highly accomplished business leader) and was a strong appointment in a bid to tackle compliance, trust and cultural matters at Revolut UK - as discussed in Financials Unshackled Issue 9 here. It’s also worth consulting a Bloomberg article from Thursday here (following an interview with Carlesi) covering how Revolut is on a hiring spree and aims to have 200 UK bank staff by year-end - and is expected to publish record profits (PBT c.$1bn) for FY24 in April. Indeed, her comments to the news agency reaffirm that, while Revolut is moving at pace, it is ‘playing the long game’: “We’re in no rush, as getting this right matters more…”.
Standard Chartered (STAN) issued its inaugural Social Bond - a €1bn 8NC7 EUR Senior HoldCo instrument at a price of MS+130bps. The order book was reported to be €2.9bn in size.
Other Irish News:
The Central Bank of Ireland (CBI) published its latest update on ‘Residential Mortgage Arrears & Repossessions Statistics’ for Q4 2024 on Friday last here. The number of permanent dwelling home (PDH) or owner occupier (OO) accounts in arrears >90 days was just 4% of all PDH/OO accounts, the lowest proportion since 4Q 2009 (notably, just 36% of PDH accounts in arrears are held by banks following intensive NPE remediation efforts since the GFC) - trending favourably on both a q/q and a y/y basis. Indeed, the number of accounts in early arrears was -2% q/q. 11% of outstanding BTL accounts (total outstanding BTL debt is just €7.7bn) were in arrears of >90 days at the end of December, also 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 Irish Times reported on Monday last on a Banking & Payments Federation Ireland (BPFI) study which suggests that the volume of bank scams is on the rise and cautions that the deployment of GenAI technology could potentially “supercharge” fraudulent activity. Read more here.
AIB Group (AIBG) issued a RNS on Tuesday 11th March noting that the Irish State’s shareholding in AIBG reduced to 11.99% (previously disclosed shareholding: 12.39%) following a transaction on Friday 7th March.
AIB Group (AIBG) issued a press release on Friday here noting that it raised €500m from a green bond issue that was priced at a coupon of 3.75%. Orders were c.€1.3bn at peak so the book was well oversubscribed. AIBG has now raised a total of €5.15bn from the issuance of green bonds and €6.9bn from the issuance of ESG bonds (i.e., including social bonds).
The Sunday Independent features an article today here on how AIB Group (AIBG) is intent on expanding its wealth management proposition and that it doesn’t see overseas expansion as a significant focus. The comments were picked up by the newspaper following a recent post-FY24 results call with debt investors. Bank of Ireland Group (BIRG) leads the charge domestically in a wealth management (and wider bancassurance) context and it makes sense for AIBG to allocate more capital to growing this business. As regards prospective overseas expansion, it seems to be a wise choice at one level in the context of limited (if any) direct synergies from a deposit-gathering / lending / fee income perspective. However, two points here are: i) AIBG is pursuing international lending growth in its Climate Capital Unit, which could present further significant interesting expansionary opportunities over time; and ii) acquiring strategic capability could make a lot of sense in a philosophical context at least (note above piece on UniCredit’s strategic acquisitions for reference).
Bank of Ireland Group (BIRG) raised €600m in an AT1 issuance at a coupon of 6.125%, i.e., at a spread of c.350bps over EURIBOR - which compares favourably with the c.390bps spread over EURIBOR at which its penultimate AT1 issuance was priced in September 2024 and is the tightest ever AT1 credit spread for an Irish banks, reflecting improved investor sentiment following its recent upbeat FY24 results update. Orders were c.€1.4bn so the book was well oversubscribed.
Further to the note on Revolut in the ‘Other UK News’ section above, the same article in The Currency here reminded us of the company’s expected entry into the Irish mortgage market in 2Q25 (which chimes with Revolut’s intent on deepening customer relationships, as noted above) with Revolut noting last year that “The goal is to offer a fully digital mortgage product that is the fastest on the market, aiming to issue instant approval in principle and final offer in one business day subject to asset valuation and any necessary checks…Mortgages will form part of the comprehensive credit offering Revolut is looking to build, with the company also exploring overdrafts”. I have commented for a long time that I don’t think Revolut will be materially disruptive in an Irish market context for quite some time at least - and I have noted that its deposit volume build in Ireland has been very limited despite its market penetration. I remain of this view. However, I could be wrong here if Revolut threw (non-deposit) funding at its Irish (and Lithuanian?) mortgage market initiatives in a bid to prove concept from a maturity transformation capability perspective (and perhaps that would be a way to reverse engineer deposit growth in time too) - let’s see how it all shakes out.
Other Global News:
Bloomberg reported on Tuesday here that Claudia Buch, Chair of the Supervisory Board of the ECB, said that the ECB will roll out a new, simpler method for setting capital requirements for individual lenders in a bid to improve both the efficiency and effectiveness of its oversight role. The revised process will have less procedural steps and will be trialled internally in 2025 and applied in SREP reviews in 2026 - with requirements under the updated processes taking effect in January 2027. Buch confirmed that the revised processes are not expected to “lead to abrupt changes in capital requirements”. Buch’s observations are available to read in the ECB’s Supervision Blog of Tuesday 11th March: ‘Reviewing the Pillar 2 requirement methodology’ here.
It’s worth reading Marco Troiano of Scope Ratings on LinkedIn here on how rising bond yields will support continued strong European bank profitability in the near-term. The post also contains a link to Scope’s recent slide deck here on the outlook for European banks in 2025.
Christopher Woolard, Partner at EY (and former FCA Board Member) penned a piece on LinkedIn on Monday last here on how regulation that prioritises national interests will impact Basel 3.1 implementation. It is helpful for a quick refresh of the differing approaches to implementation that are being adopted by the main regulators globally
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