Financials Unshackled Issue 40: Week In Review (UK / Irish / Global Banking Developments)

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Welcome to the latest issue

Welcome to Financials Unshackled Issue 40. This ‘Week In Review’ includes: i) a calendar for the week ahead; ii) analysis on select key developments 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.

If you prefer an audio version of this article click ‘READ IN APP’ above and then press the PLAY button.

Photo by Geron Dison on Unsplash

Calendar for the week ahead

Wed 26th Mar (typically c.12:30 BST): UK Spring Statement and Office for Budget Responsibility (OBR) Economic & Fiscal Forecast

Thu 27th Mar: AIB Group (AIBG) Ex-dividend

Thu 27th Mar (09:00 BST): European Central Bank (ECB) Monetary developments in the euro area - Feb 2025

Key Newsflow

UK Banks (1) - Takeaways from Morgan Stanley Conference (incl. STAN)

UK large cap banks presented at the Morgan Stanley European Financials Conference last week. Key take-aways for me were:

• Macro backdrop conducive to further loan growth (retail, business) and deposits growth.

• Political / regulatory environment favourable with the pro-growth Labour government pushing hard on the regulatory loosening front to support the industry.

• Confidence across the board in the context of both FY25 guidance achievement and medium-term targets delivery.

• Strong visibility on structural hedge income over the coming years.

• Deposit mix (i.e., ‘churn’ or ‘flow to term’) has stalled with just some marginal movement out of current accounts into demand product noted (worth keeping an eye on this though as any material pick-up would have influence on funding costs, size of structural hedges, etc.).

• Some compression in mortgage spreads observed but swap rate volatility meant that was inevitable and confidence that completion margins will settle again in that c.70-75bps territory.

• Major focus on operating cost efficiencies.

• No observed deterioration in credit performance across any of the UK or overseas books at this point.

• Strong double-digit RoTE targets can be delivered and will facilitate continued strong shareholder distributions. View expressed that buybacks still make sense at current valuation levels. Capital optimisation also in focus.

• M&A appetite is there for acquisitions if a target presents compelling value and/or can deliver strategic benefits faster than the alternative organic route - but price is a key factor and hurdle rates are high.

I published a detailed piece on the detail discussed at the Lloyds (LLOY), NatWest Group (NWG), and Barclays (BARC) fireside chats in the early morning of 19th March - click below to access this detail.

Standard Chartered (STAN)’s fireside was not covered in the aforementioned piece as the STAN CFO Diego De Giorgi was due to present later on the 19th. Key observations made by De Giorgi at that fireside were (and see the transcript here for full detail): i) reiteration that it will be difficult to grow net interest income (NII) in FY25 due to an expected decline in passthrough rates, portfolio / client re-focusing as STAN pursues its shift towards Affluent Wealth Management, and the short-term costs associated with continued structural hedge upsizing; ii) positive messaging on progress in building Affluent Wealth Management capability despite strong competition for relationship managers (RMs) though some caution that the stable c.1.4% RoA will naturally dip temporarily owing to recent strong asset growth before springing back; iii) Markets business has had a good start to FY25 with volatility a key support factor; Global Banking pipeline positive but lots of uncertainty in a forward-looking context; iv) STAN has a competitive edge in an originate-to-distribute model context, with some good colour provided in this context; v) environment improving in the context of the potential of the SC Ventures’ portfolio to achieve some exits / stake selldowns; vi) reiterated deep commitment to stick with ‘Fit for Growth’ transformation project despite ongoing short-term temptations not to spend; some colour in relation to STAN’s investments in AI also conveyed; vii) STAN remains optimistic about credit performance going forward (emphasised extent of derisking and the negligible exposure to HK CRE); and viii) the 13% FY26 RoTE target is just a “staging post” and the longer-term ambition is to do better; management still thinks STAN is “deeply undervalued”.

UK Banks (2) - Close Brothers 1H25 update disappoints the market

Close Brothers Group (CBG) published 1H25 results (for the six months to 31st January) on Tuesday 18th March. CBG reported a loss before tax of £103.0m for the period following an £88.1m operating profit before tax (PBT) in the prior year - with the y/y swing largely attributable to a substantial provision in relation to motor finance commissions of £165.0m as well as: i) a downdrift in adjusted operating profit owing to slightly lower revenues, slightly higher operating costs, and a slightly higher level of impairments; and iii) one-off costs in the period. The adjusted operating profit came in at £75m, implying an adjusted RoTE of 7.4%.

The £165m provision charge was ahead of consensus estimates despite the fact that CBG had already noted, in a 12th February trading update, that it anticipated a 1H25 provision “of up to” £165m and it spooked the market (while I can’t get an accurate gauge of what the consensus 1H25 provision was, the FY25 consensus estimate - based on company-compiled consensus data as at 28th February - was just £148m) - and this overshadowed positive news on restructuring costs experience / FY25 restructuring costs expectations as well as an upward nudge in expected potential cost savings. The other major pinch point for the market was that there now appears to be meaningful downside to FY25 revenue estimates (consensus as at 28th Feb for £791m) given the 1H25 £390m outturn and the refreshed guidance for FY25 NIM to come in at c.7.0% (a downgrade from c.7.2%, which management seemed quite confident on at the stage of the 1Q trading update on 21st November - and comes despite a significant reduction in net loans in 2Q, which also likely disappointed a bit) following a 1H25 7.3% print, which assumes some growth in loan balances (and, therefore, AIEAs) in 2H25. Notably, the 1H exit rate was 7.1%. There is a possibility that this revised NIM guidance errs a bit on the cautious side though given: i) this update was never going to be well received by the market in light of the motor finance commissions provision so maybe management decided to get all the bad news out of the way here rather than run the risk of having to disappoint again at the stage of the 3Q update (which typically comes during the third week of May - and at which stage it is unlikely that the Supreme Court will have made its decision so it is very unlikely that there will be any ‘new news’ in a motor finance debacle context); and ii) the CFO’s comments in the Q&A on 2H NIM dynamics and 2H exit NIM (taking everything together that is in the public domain, mathematically, it seems more like NIM should come in at c.7.1% or even a few basis points above that for FY25 - though, trying to be super-precise in this respect is a fool’s errand) - I guess the way I look at it is if you feel that there is a significant risk of, say, a 10bps miss then you either don’t downgrade or, if you do, you go at least 20bps (otherwise, why bother…) and give yourself a little bit of room as you downgrade (basically it doesn’t feel like a ‘falling knife’ scenario given loan growth guidance, mix trends, and disciplined market-wide deposit pricing behaviour).

In response to a question as to whether the £165m provision reflects last week’s FCA Statement (given a potential redress scheme may mean higher costs presumably), the CEO Mike Morgan noted that the Balance Sheet provision reflects management’s best estimate and is a probability-weighted assessment, reflecting all information available to CBG. He went on to note that the end state hit, of course, be materially higher or materially lower - and, as I have written in Financials Unshackled before, all hinges on the Supreme Court decision, what the FCA decides to do in the aftermath and what the parameters of a potential redress scheme would look like, and how ‘customer loss’ is defined. The bottom line here is that there is lots of uncertainty and many judgments in the formulation of an associated best estimate accounting provision (a later question on what the worst case scenario shows understandably wasn’t answered).

Still though, CBG remains well-capitalised to cope with further adversity (pro forma end-1H25 CET1 capital ratio of 13.4% including the impact of the CBAM disposal) versus minimum regulatory requirement (excl. P2B) of 9.7%. In March 2024 CBG announced a range of management actions with the potential to strengthen CET1 capital by c.£400m by end-FY25 - and c.£360m of CET1 had been generated from such actions by end-1H25. Morgan also noted that a SRT transaction is ‘ready to go’ and that there are other options in relation to portfolio transactions but that these initiatives won’t be initiated unless it becomes necessary. A question came up as to whether Winterflood specifically could come up for sale (note that analysts have previously suggested that Winterflood could be put on the block following the agreed CBAM sale - click here for an article on that) but, unsurprisingly, management wouldn’t be drawn on that - and for anyone hoping for reassurance that CBG will retain that business, it is hardly as if management is in a position to make any firm commitments given prevailing uncertainties, but, it sounded like, much like the prospective SRT, the Board will move to sell Winterflood only if necessary.

Stepping back, and in an effort to talk about the business with a more strategic lens, management was keen to point out that CBG remains committed to its ‘borrow long, lend short’ and high NIM philosophy, that underlying returns are inadequate, and that there is a major focus on addressing that. However, until the current heightened level of uncertainty subsides, the focus seems set to remain on the motor finance debacle and the interrelated questions surrounding CBG’s capital sufficiency.

European / Irish Banks (1) - ECB minimum reserves in the spotlight again

Bloomberg reported here on Thursday that the Austrian Central bank Governor Robert Holzmann has repeated his calls for a substantive hike in unremunerated minimum reserve requirements (MRR) for eurozone banks (which are currently set at 1% of specific liabilities, mainly customer deposits - which was reduced from 2% in 2011), noting at a presentation in London: “A rate of 5% to 10% of unremunerated minimum reserves would reduce substantially the high implicit subsidy commercial banks currently receive while strengthening the balance sheet of central banks”.

Holzmann was the most vocal of all ECB Governing Council members on this point back in 2023 when it was quite a significant discussion theme for some time and he is, likely, understandably frustrated with widening central bank losses. However, his suggestion seems unlikely to travel for a number of reasons: i) most importantly, the ECB imposed no changes to MRR in when it reviewed and amended its operational framework in 2024 (see here), which followed its July 2023 decision to retain the MRR at 1% but to stop remunerating the minimum reserves; ii) base rates are expected to come down further meaning that the benefits for central banks from doing this would be expected to be considerably lower than when base rates were at their recent peak point; iii) an abrupt blanket approach like this would potentially cause difficulties for some banks; iv) it could lead to unnecessary hoarding of liquidity; and v) remunerating reserves is part of the monetary transmission mechanism. So, all in all, I don’t see much risk of change here despite the comments - which have, most likely, been interpreted as venting. The other notable contributors to this argument (though less forcefully) in 2023 were Joachim Nagel (President of the German Bundesbank) and Pablo Hernandez de Cos (the then Governor of the Bank of Spain, who has now been succeeded in that role by Jose Luis Escriva). I am doubtful that Nagel or Escriva (or, indeed, other ECB Governing Council members) will chime in with similar views this time round. Other ways in which the ECB could impose pain on the sector would be to penalise those banks that hoard deposits, i.e., those with low loan-to-deposit ratios (who typically park a substantial portion of their excess liquidity at the central bank, earning a decent carry) - for example, AIB Group (AIBG) - however, that also seems unlikely given that official rates are on a clear downward trajectory.

Snippets

Other UK News

• UK deregulation continues to be in focus. Treasury announced on Monday 17th March that it has launched a review of the Financial Ombudsman Service (FOS) to address concerns that it has been acting as a ‘quasi-regulator’ (good article in the FT on this here) - a much overdue and highly welcome development in my opinion given, in particular, the ridiculous uncertainties non-standard lenders, in particular, faced trying to understand how to meet differing and seemingly constantly evolving FCA and FOS requirements back in the pre-Covid era. More broadly, the Chancellor met with the chiefs of various regulators on Monday last as she unveiled an action plan to deliver on the pledge to cut the administrative cost of regulation on business by a quarter and drive growth and competitiveness (read about it here and access the detailed Policy Paper here) and it was subsequently reported by Reuters here that she is quite pleased with growth actions that she has seen financial regulators take thus far. Treasury also published a press release on Tuesday here following the Chancellor’s meetings with fintechs the previous day confirming that “duplicative and burdensome rules” affecting fintechs will be slashed. Finally, Martin Arnold of the FT makes some sensible observations about the trade-offs between risk and regulation in the newspaper here on Thursday.

• Following on from the above, UK Finance published its ‘Plan for Growth’ here on Monday 17th March (good article in the FT on this here), which proposes that government and regulators effect a significant number of specific sensible reforms, which, notably, include the following: i) swift reform of the FOS in 2025 to bring an end to its behaviour as a de-facto regulator and require it to apply relevant law and regulations as well as FCA rules and guidance; ii) the CMA should review and revoke historic market investigation remedies that have been retained for many years in the retail banking sector, including the Retail Banking Market Investigation Order, SME Undertakings and the PPI Market Investigation Order; iii) the FCA should establish a joint industry working group to ensure the Consumer Duty is embedded in a way that complements the FCA’s secondary competitiveness and growth objective; iv) government should identify further short-term reforms to the bank ring-fencing regime, building on recent changes, such as allowing ring-fenced banks to provide broader risk management tools; v) government should commence engagement and consultation with industry soon on substantial reforms to the ring-fencing regime which could take effect in the medium to longer term, including the elimination of all duplication with the resolution regime; vi) regulators should deliver further reform of capital requirements for banks of all sizes (including the removal of cliff edges in capital and leverage requirements, reforming the Leverage Ratio framework by increasing the £50bn threshold, and providing clarity on Pillar 2 capital requirements under Basel 3.1 asap) so that these requirements better reflect the level of risk in the system, to help boost lending to UK businesses and homebuyers and improve gilt market liquidity; vii) regulators should finalise the Small Domestic Deposit Takers Regime, introduce the Intermediate Capital Regime, and speed up the transition journey for firms seeking to move from standardised or hybrid capital weights to the Internal Ratings-Based (IRB) approach; viii) regulators should modify the MREL regime so the thresholds reflect improvements in capital and resolution regimes and are indexed and reviewed periodically; ix) government should make the UK’s approach to bank taxation globally competitive by updating the Corporate Tax Roadmap to include a timeline to phase out the bank corporation tax surcharge and the bank levy; and x) government should ensure the tax treatment of UK equities is more competitive globally by removing the 0.5% stamp duty charge currently applied.

• Treasury issued an Open call for evidence in a small business access to finance context on Thursday last here - in a bid to seek to understand better how both finance providers and small businesses can overcome barriers to finance.

• Evident Insights’ latest Responsible AI Report here finds that UK banks are lagging behind their US and European counterparts on AI adoption - though Evident insights’ CEO & Co-Founder Alexandra Mousavizadeh noted that “What we’re seeing now is UK banks moving fast to catch up”. Also covered in CityAM here.

• The Finance & Leasing Association (FLA) issued its monthly update for January 2025 on Thursday last: i) the value of asset finance lending was +2% y/y in January and +3% y/y on a rolling 12M basis (i.e., in the 12 months to end-January) - see here; ii) the value of consumer finance lending was +2% y/y in January and +2% y/y on a rolling 12M basis - see here; iii) the value of new consumer car finance was +14% y/y in January and +7% y/y on a rolling 12M basis while the value of used consumer car finance was -2% y/y in January and -4% y/y on a rolling 12M basis - see here; and iv) the value of second charge mortgage lending was +29% y/y in January and +26% y/y on a rolling 12M basis - see here.

• Barclays (BARC) issued a RNS on Tuesday 18th March here announcing the following Board changes: i) Tim Breedon to resign as a Group NED with effect from 30th April following a >12-year tenure; ii) Diony Lebot appointed as a Group NED with effect from 17th March (she was formerly Deputy CEO and Group CRO at SG); and iii) Mary Mack appointed as a Group NED (and a NED of Barclays Bank plc) with effect from 1st June (her most recent role was CEO, Consumer and Small Business Banking at Wells Fargo).

• Reuters reported here on Friday last that Barclays (BARC) won the dismissal on Friday of two US securities fraud lawsuits related to the bank’s historical unauthorised sale of $17.7bn more securities than regulators allowed.

• Close Brothers Group (CBG) issued a RNS on Monday 17th March noting that FIL’s shareholding in CBG increased to 5.12% (previously disclosed shareholding: 4.66%) following a transaction on Thursday 13th March.

• Close Brothers Group (CBG) issued a RNS on Thursday 20th March noting that Chairman Michael Biggs acquired 5,000 shares in CBG at a price of 288.4p per share for a total outlay of almost £15k on Wednesday 19th March.

• Funding Circle Holdings (FCH) issued a RNS on Wednesday 19th March noting that Zedra Trust’s shareholding in FCH increased to 3.14% (previously disclosed shareholding: 2.90%) following a transaction on Friday 14th March.

• I didn’t see a dial-in option last week to join the HSBC (HSBA) fireside chat at the Morgan Stanley European Financials conference. I came across the webcast replay link this afternoon on the IR section of HSBA’s website here but, quite frankly, I haven’t had a chance to listen back yet. Separately, Bloomberg published a couple of interesting articles in a HSBA-related context last week: i) Lisa McGeough, CEO of HSBC US, said to the news agency last week (see here) that its US operation is zoning in on what it sees as key Investment Banking units after it decided to exit M&A and ECM: “We can support clients in financing — that’ll be debt capital markets and leveraged finance — and the global transaction banking…These are really amazing, sort of jewel of the crown type of businesses”; and ii) Ping An is reportedly “very happy” with the direction that HSBA is taking under its new CEO, as reported here.

• Investec (INVP) published a pre-close trading update for the year ending 31st March on Thursday last here. On the UK business, including Rathbones Group: i) adjusted operating profit is expected to be 4.0% behind to 4.0% ahead of the prior year (FY24: £455.5m); ii) Specialist Bank adjusted operating profit is expected to be c.4.0% behind to c.4.0% ahead of prior year, following a significant increase of 33.9% in the prior year (FY24: £406.2m); iii) a credit loss ratio around the upper end of the previously guided range of 50-60bps , driven by certain specific impairments, is expected; and iv) the UK business RoTE is expected to be 13.5-14.5%, within the medium-term target range of 13.0%-17.0%.

• The Standard reported last week here that Lloyds Banking Group (LLOY) is pressing ahead with an overhaul of its IT division after thousands of technology and engineering roles were placed under review a few weeks ago.

• The Wall Street Journal on Thursday picked up on latest HSBC analyst research which notes that Lloyds Banking Group (LLOY) is “set to see faster and more sustainable income growth than NatWest and Barclays” and that its “more diversified business model and fee income growth makes it the best placed to benefit as costs and risk-weighed assets inflation remains low”. That is certainly the message that LLOY CEO Charlie Nunn was seeking to convey at the Morgan Stanley European Financials conference in London last week, as reflected in my detailed note following the firesides - in Financials Unshackled Issue 39 here.

• Metro Bank (MTRO) held a General Meeting on 18th March “to consider, and if thought fit, approve the allotment of, and the disapplication of pre-emption rights in connection with, Company shares related to any potential future regulatory capital raise (including the issuance of contingent convertible securities but not ordinary shares in the Company (common equity))”. Notably a broader resolution to disapply pre-emption rights was, understandably, not supported at the AGM on 21st May last and MTRO subsequently issued a RNS on 19th November noting that it had consulted with shareholders who voted against the resolutions and understands their reasons. I wrote in Financials Unshackled Issue 36 here that it seemed that the shareholders’ views had been taken into account given the narrower disapplication of pre-emption rights proposed than was originally contemplated. Indeed, MTRO received approval from >90% of the shares voted for each of the revised proposals.

• Finextra picked up here on Metro Bank’s (MTRO) initiative to implement an agentic AI platform from Covecta to reduce the time taken to process loans across its corporate and commercial credit businesses.

• Finextra picked up here on Monzo’s development of a back-up bank, Monzo Stand-in, a replica platform that enables customers to make payments, withdraw cash, freeze their card and send and receive bank transfers even if the main Monzo app goes down.

• Interesting to read NatWest Group’s (NWG) press release on Thursday last here which flags that it has entered into a collaboration with OpenAI that supports its strategic focus on bank-wide simplification, which includes deploying AI to meet customers’ needs faster and more effectively and to increase productivity and efficiency across the bank.

• Interesting to read the RNS published by OakNorth Bank on Monday here announcing a share-for-share acquisition of the Michigan-based Community Unity Bank (implied valuation undisclosed). I wrote in Financials Unshackled Issue 37 here that OakNorth’s strong 22% FY24 RoTE print was supported by strong growth in the US and its experience over the last 18 months in that market appears to have given management the confidence to press forward strongly in the US - as reflected in the following excerpt from Rishi Khosla’s (CEO & Co-Founder) comments on the deal: “Demand from US borrowers continues to be exceptionally strong and our differentiated offering and unique approach to lending has enabled us to rapidly establish a strong presence in the US market, resulting in us lending c.3x our initial expectations.”.

• OSB Group (OSB) issued a RNS on Friday 21st March noting that Group COO Clive Kornitzer sold 24,383 shares in OSB through a nominee account at a price of 470.25p per share for gross proceeds of almost £115k on Tuesday 18th March.

• OSB Group (OSB) issued a RNS on Friday 21st March noting that Group Chief Credit Officer and MLRO Richard Wilson sold 39,465 shares in OSB through a nominee account at a price of 466.77p per share for gross proceeds of almost £185k on Wednesday 19th March.

• The Wall Street Journal reported here on an interview it had with Francesca Carlesi, CEO of Revolut UK, in which she noted that the company’s push to become a fully operational bank in the UK is a crucial step in the context of its global expansion and eventual IPO plans - with Carlesi noting that her “…main strategic focus is making Revolut the primary bank for everybody in the U.K.” by fulfilling customers’ financial needs to a greater degree.

• Bloomberg reported here on Tuesday on an interview it held with Santander Group Executive Chair Ana Botin (following the bank’s newly forged partnership agreement with Verizon in the US - press release here) in which she noted that the Americas will continue to be more of a focus for the group than Europe: “We continue to have a big business in Europe, we see a lot of potential over the next few years in Europe…But our focus will continue to be more on the Americas”. It was subsequently reported on Wednesday that Santander is to close 95 of its 444 UK branches in an efficiency drive which could see c.750 jobs go - which ought to be a constructive move from a Santander UK RoTE capability perspective. Notably, BirminghamLIVE reported here on Friday that a spokesperson for Santander UK has reiterated previous remarks noting that “The UK is a core market for Santander and this has not changed”.

• Secure Trust Bank (STB) issued a RNS on Monday 17th March noting that: i) PCA to CFO Rachel Lawrence, James Lawrence, acquired 3,878 shares in STB at a price of 513.05p per share for a total outlay of almost £20k on Thursday 13th March; and ii) PCA to MD Savings & Vehicle Finance Julian Hartley, Mary Hartley acquired 5,501 shares in STB at a price of 542.55p per share for a total outlay of just over £30k on Thursday 13th March.

• Standard Chartered (STAN) announced on Monday 17th March that regulatory approval has now been received from the PRA and FCA for Maria Ramos' appointment as Group Chair. Ramos is expected to commence in the new role after the AGM on 8th May.

• TSB Bank issued a press release on Friday last here confirming that Marc Armengol has taken up the CEO post following regulatory approval. Armengol was most recently COO at Banco Sabadell, TSB’s parent. Also interesting to note that The Wall Street Journal picked up on the Sabadell Chairman Josep Oliu’s comments last week that TSB “..is a capital investment which is currently generating good returns”. Still though, if BBVA’s hostile takeover bid succeeds there will plenty of speculation that TSB might come on the block.

• Vanquis Banking Group (VANQ) issued a RNS on Thursday 20th March noting that CFO Dave Watts acquired 40,000 shares in VANQ at a price of 57.06p per share for a total outlay of almost £23k on Wednesday 19th March.

Other Irish News:

• It was widely reported in the Irish media last week that Avant Money (Bankinter) plans to launch a 12M EURIBOR-linked mortgage product in April (read more here in The Irish Times). It is the first innovative initiative I can recall in the mortgage market for quite some time and seems a sensible low-risk (it’s 12M EURIBOR importantly - and is not linked to the refinancing rate, for example) way of offering an alternative product to standard fixed and variable rate mortgage product. More broadly, it does hint that competition from Avant, whose share of originations has declined a bit over the last year, could heat up over the coming months. As I wrote in Financials Unshackled Issue 34 here, I also suspect Avant will also bring some innovation in a deposits market context - i.e., surely currently ultra-low-priced easy access / demand deposit product will be a key point of attack for Avant?

• Interesting to read an interview in The Currency here with Nick Fahy, CEO of Cynergy Bank in the UK, who, as an Irishman, expresses his views on the opportunity in the SME lending market in Ireland: “I think the SME market is ripe for disruption in Ireland as well. So it will be interesting to see how the regulators deal with those players that are coming into Ireland and what the regulatory regime will be for them. That’ll be an interesting piece.”. However, while he discounts the prospects of Cynergy Bank entering the Irish market in response to a question on the point (“I think for me it would be a bandwidth point, I think we have a lot of headroom in the UK market…If you look at even the medium businesses in the UK. There are about half a million medium businesses in the UK, we have about two per cent of that. So therefore we’ve loads of headroom here”), one does get the sense that he has toyed with the idea - particularly as he goes on to note that, while Cynergy would be potentially open to other markets, the regulatory regime would need to be “conducive to competition” and, given the Irish market is really just about three players (some would say two really in business lending since the exit of Ulster Bank I would add) “…it’s hard to see how a competitor would break into that”.

• The Central Bank of Ireland (CBI) published a paper on the evolution of household savings determinants and implications last week here within its latest Quarterly Bulletin (click here for the full document). For context, the household savings rate in Ireland increased to 13.8% in 2024. The CBI finds that the growth in savings rates reflects: i) an increasing share of households preparing for or in retirement - and evidence that older households have increased savings to fund intergenerational transfers; and ii) younger households saving for housing. The data also show an increasing preference for households to save in riskier financial assets and private pensions.

• Banking & Payments Federation Ireland published its latest Housing Market Monitor for Q4 2024 on Friday last (press release here and report here) which concludes that: “…around 75,000 housing units could be completed in the next two years, based on commencement activity, but inefficiencies in the system relating to land, capital and labour issues will need to be addressed to provide significantly more homes in the short term”. Someone needs to railroad through the planning laws with some emergency measures at this stage in my view (provided Trump’s moves don’t derail everything - with some evidence that some savvy exposed investors are ‘calling the top’) - maybe the new Housing Czar, who will likely have a bit of bite (I see the NAMA Chief Brendan McDonagh is the hot tip, as reported by the Business Post here), will go there. That said, it’s not the only issue by any means…

• The Irish Independent reported here on Monday 17th March that Home Building Finance Ireland (HBFI) , the state agency, has “beaten off competition from private funders – including Bank of Ireland – to win a major deal for a huge Galway city housing scheme…after it agreed to shoulder a greater portion of risk than other bidders, according to informed sources”. Ian Lawlor reportedly told the newspaper that “HBFI was set up to help smaller home builders but now they are slashing prices and even the likes of Bank of Ireland can't compete with them”. This is a well-known issue with HBFI in the Irish market according to many private conversations I have had and is, in my view, representative of intolerable crowding out of private capital by the State (it’s not the only example, mind you). The counterargument here, to play devil’s advocate, is that the Irish banks are pricing risk too highly - but it’s a hard argument to make given that it doesn’t appear that it was just Irish banks at the lending altar in this case.

Other Global / European News:

• Interesting to read on Bloomberg last week here that Deutsche Bank has agreed a private credit partnership with its asset management arm, DWS Group, that will grant DWS “preferred access to certain asset-based finance, direct lending and other private credit asset opportunities” originated by the bank. Separately, it was also interesting to read another report on Bloomberg last week here, which notes that “Private credit funds are grinding down margins and cranking up leverage to win business over their liquid peers, as trade wars and geopolitical uncertainty suppress corporate deals”. And, getting back to Deutsche, it was interesting to read a report on Bloomberg on Friday here on how the bank decided to skip a call on an AT1 bond whose coupon is set to jump from 4.79% to 8.47%, which drove up prices for the instrument - the decision is understood to be because the bank would have taken a €240m loss if it redeemed the debt due to post-issuance FX rate changes, which is reflective of the fact that German banks account for AT1 as equity using the prevailing FX rate at the issuance date, according to Simon Adamson at CreditSights.

• The European Banking Authority (EBA) published its Q4 2024 Risk Dashboard on Friday here, which concludes that the EU/EEA banking sector remains stable amidst evolving geopolitical challenges.

• The European Commission (EC) published proposals on Wednesday last for a number of measures in a Savings and Investment Union context here. The measures include tax incentives for savers to invest in European assets, a review of capital requirements for banks and insurers, and more centralised market supervision - as the FT neatly summarised here.

• Frank Elderson of the ECB spoke at the Morgan Stanley European Financials conference in London last week on how resilience of the European banking sector offers a competitive advantage (transcript here). Elderson talked again about the deficiencies of a fragmented European banking system and spoke about how scaling up / cross-border bank consolidation could drive operating efficiency: “One possible way of improving operating efficiency would be to reap economies of scale. Scaling up would enable banks to arrive at the investment budgets they need for digitalisation and cybersecurity.”,

• Claudia Buch and Isabel Schabel of the ECB write here on how the aggregate amount of central bank liquidity available to banks in the euro area will fall over the coming years as the normalisation of the eurosystem balance sheet progresses. Reuters covered this here.

• The FT published a detailed piece on UK and European banks structural hedging programmes last week here and I was delighted to contribute to the detailed piece - which is well worth a read.

• Compliance Corylated reported here last week on how Open Banking adoption could be constructive for SME lending credit risk assessments. I was delighted to contribute to the piece.

• Lots of notes on Klarna over the last week ahead of its impending IPO. Check out: i) Marc Rubinstein at Net Interest here; ii) Rupak Ghose here; iii) Fintech Business Weekly here; and iv) Fintech Brainfood here. And for good measure on then topic of BNPL it’s also worth checking out Popular Fintech on Affirm here.

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