Financials Unshackled Issue 42: Week In Review (UK / Irish / Global Banking Developments)
The independent voice on banking developments - No stockbroking, no politics, no nonsense!
The material below does NOT constitute investment research or advice - please scroll to the end of this publication for the full Disclaimer
Please note that Financials Unshackled is now taking a break from writing for a few weeks and will return to your inboxes after the Easter period - I will be keeping on top of developments during this break and will cover critical newsflow that emerges in subsequent posts.
Given that far more of this newsletter’s subscriber base resides in the UK than in any other country I thought it worth flagging to readers that I am in London on the following dates with some availability - please send an email to john.cronin@seapointinsights.com if you would like to catch up in person:
Thu 10th April
Mon 12th May
Tue 13th May
Wed 14th May
Thu 15th May
Welcome to the latest issue
Welcome to Financials Unshackled Issue 42. This ‘Week In Review’ follows a different format to the usual style. It comprises a reflection on the tariff announcements in a banking sector context followed by a short round-up of other key newsflow in a UK, Irish, and European banking context (all of which was relatively thin last week). As usual, please email me at john.cronin@seapointinsights.com if you have any feedback. While I cannot commit to responding to every email I will do my best.
On a final opening note I was pleased to be quoted in The Wall Street Journal, Management Today, CityAM, The Irish Times, and The Sunday Times (Ireland edition - print only) in the last week.
If you prefer an audio version of this article click ‘READ IN APP’ above and then press the PLAY button.
Calendar for the weeks ahead
A quiet period lies ahead (from a scheduled releases perspective…!) which will be followed by a congested 1Q25 bank earnings season given the lateness of Easter this year
Wed 9th Apr (10:30 BST): Bank of England (BoE) Financial Policy Committee (FPC) Record - Apr 2025
Wed 9th Apr (11:00 BST): Central Bank of Ireland (CBI) Retail Interest Rates - Feb 2025
Tue 15th Apr (07:00 BST): S&U (SUS) FY24 Results
Tue 15th Apr (09:00 BST): European Central Bank (ECB) Euro area Bank Lending Survey
Thu 17th Apr (13:15 BST): Result of ECB Governing Council Monetary Policy Meeting - followed by a press conference
Wed 23rd Apr (10:00 BST): NatWest Group (NWG) AGM
US Tariffs; Bank stocks take a whacking
What a week. Still trying to make sense of it all. I’m not an economist but I’m not sure it’s all about economics. I guess it is in part - mixed with more than just a splash of game theory, arrogance, and questionable judgment in my opinion.
Hard to make sense of it all
It seems that the Trump administration wants to have its cake and eat it. The announced tariffs seem to be just an opening gambit to facilitate ‘deals’ (“China played it wrong, they panicked…”). Yet one cannot imagine a complete reversal - unless domestic US resistance becomes overwhelming. The thing is world order is not a game of chess (I accept some will dispute this) - it’s not a match to win or lose; indeed Economics 101 teaches us that leaning into the law of comparative advantage can drive win-win trade relationships. But that doesn’t seem to be the prism through which the Trump administration views world trade. And it feels like this can’t just be about getting good deals for America. It seems without doubt to me that the prevailing view amongst the decision makers in the Trump administration is that a deglobalisation agenda will indeed ‘Make America Great Again’ (which is consistent with that bipolar ‘good or bad’ simplistic thinking that we see on a daily basis nowadays). But every seasoned economist disagrees as far as I’m aware. I mean, is the US really the right jurisdiction for apparel manufacture? Does it even have the labour and infrastructural capacity?
Maybe it will turn out to be liberation with the test of time - in a different way
Stepping back, it feels to me that the top brass and the various sycophants who surround them have adopted this high-level view and are hellbent on proving everyone else wrong. It reminds me of a well-known former British politician’s comment that “…the people of this country have had enough of experts..” as he lobbied for Vote Leave in the run-up to the Brexit vote. Indeed, we see this trait in some CEOs too - pick a side or take a bet that one technology will win over another, bet the house on it, and play the ‘strongman’ who doesn’t tolerate any dissent within the ‘ranks’ (i.e., surround yourself with ‘yes men/women’ and seek to control the Board). Indeed, that’s often how those rare truly disruptive entrepreneurs succeed - going against their grain, bravely applying reasoned (yet risky) longer-term deep vision. But it is for this reason that the vast majority of entrepreneurs are ill-suited to running countries, in my humble view at least. Indeed it is difficult to see how even this crew harbours sufficient economic expertise to make that determination. It would all be a bit of craic if we were sitting around the Monopoly table I guess - bet big as you might win. But this is global affairs, not a card game. What’s more, even if the economic arguments did check out (even that contrived reciprocal tariffs formula!), there appears to be no evidence whatsoever of any long-term strategic thinking or concern from a wider international relations perspective. Fundamentally, excessive ego and arrogance lead people to overestimate the strength of their hand and (sometimes dangerously) underestimate / dismiss others. There is no sign of humility here (indeed, the ‘powers that be’ probably see that as weakness like that line out of Oliver Stone’s 1987 Wall Street movie…). A dangerous game indeed. Perhaps the wide-ranging (potential) economic and political ramifications arising from ‘Liberation Day’ will, at some level, help ‘break the cycle’ of these kind of ‘leaders’ in time - thereby proving a liberation of sorts, though in a different way to what the protagonists think.
Stocks sell off
With that in mind it doesn’t surprise me to witness the turmoil inflicted on stocks in the last week. UK and European bank stocks have, in particular, been in the line of fire given their status as levered plays on the economies in which they operate as well as the material reduction in UK and EUR swap rates we have observed in recent days.
UK banks have sold off aggressively
On the UK banks, the hardest hit have been the international players. HSBC (HSBA) is heavily exposed to global trade flows and maintains a presence in many jurisdictions which are set to be hit with high tariffs from Wednesday and was down 14% last week. It’s a similar dynamic in the case of Standard Chartered (STAN) - which has significant exposure, in particular, to emerging markets in Asia, the Middle East and Africa - some of which will suffer extremely high tariffs with effect from Wednesday (STAN dropped by 16% last week). Barclays (BARC) has been clobbered (-15% last week) to a greater extent than domestic-focused peers due to its reliance on cyclical Investment Banking revenues as well as its significant exposure to the US consumer by virtue of its US cards business. But no one has escaped the rout despite the UK’s relatively lower 10% goods tariff - fears of a marked slowdown in economic activity / recession and lower official rates have weighed heavily on UK domestic banks too (with NatWest Group (NWG) and Lloyds (LLOY) down 10% and 11% respectively in the last week). It seems likely that bank stocks will remain super-sensitive to tariff-related newsflow over the coming weeks. Indeed, I have been highlighting the scale of - the rather prescient - director share sales in recent weeks in the case of the UK banks, with executives selling across all the large names (though, to reiterate, Metro Bank (MTRO) and Secure Trust Bank (STB) notably bucked the trend here - with MTRO and STB executives having been in ‘buy mode’).
Irish banks sell-off continues
The Irish banks have suffered a significant sell-off in recent weeks as fears mounted ahead of Liberation Day - and in response to the announced 20% tariff that is set to be applied to EU goods. AIB Group (AIBG) was -11% last week, following a 11% fall the previous week (a week during which we learned that BlackRock materially trimmed its substantial position), Bank of Ireland Group (BIRG) was -10% last week following a 6% drop the previous week, and PTSB fell by 12% last week having seen a decline of <3% the prior week. The issues from an Irish perspective are nuanced. A 20% goods tariff is clearly unhelpful but, for now, pharma has been excluded - though it appears that an announcement is imminent in relation to measures that the Trump administration intends to take with respect to this particular industry with Ireland standing tall in the line of fire. I have argued before (see Financials Unshackled Issue 19 here) that the pharma industry is not footloose (and pharma corporation executives are unlikely to make long-term strategic location decisions at the stroke of a pen, especially given ’policy volatility’) but we’ll have to see what gets announced. Domestic fears are understandably heightened given the dependence on US MNCs for employment (>20% of the workforce including indirect employment on economists’ estimates - and a direct workforce that is, on average, paid disproportionately more than those in other industries) and fiscal receipts (though the NTMA, the Irish State’s debt management agency, has done a remarkable job from a pre-funding, maturity profile management, and a funding cost anchoring perspective - and you can access the NTMA’s most recent detailed Investor Presentation from 19th March here). BIRG, by virtue of its significant business activities in the UK, is more diversified internationally than its peers, AIBG and PTSB - but all three names are heavily biased towards interest revenues and especially sensitive to official rate changes as a consequence. Fresh announcements from the Trump administration on pharma - or indeed tax arrangements - are unlikely to do much for positive sentiment ‘on the ground’ and elsewhere.
More down, then up - or down and down if the current thinking prevails for some time (hmmm….)? Who knows…
Who knows where all this ends up. While it appears to be an opening gambit in part given the Trump administration’s stated willingness to negotiate it also feels like a strong deglobalisation push as noted above. That being said, it also feels like ‘the bark is worse than the bite’ as usual and where things end up in six months is, in my view, likely to be radically different to where things are today. But it’s all highly uncertain and highly unpredictable - which hardly bodes well for confidence in the near-term. While some analysts are taking the opportunity to highlight fundamental value opportunities in the banking sector right now (for example, implied cost of equity for Irish banks - just using latest TNAVs and estimated RoTEs (appreciating that RoTE uncertainty is the operative word…) - are hovering in the 20%+ territory, on average) it can feel like an effort to ‘brush out the sea’ during periods like this. Still though, the Trump administration can’t persist with anything close to the current ‘line of attack’ for long - surely?…
Other Select UK Newsflow
A few highlights from the past week:
The Supreme Court heard Close Brothers’ and MotoNovo’s (Aldermore) appeals to the recent Court of Appeal ruling in a motor finance commissions context over the 1st through 3rd April. Various media outlets picked up on the FCA’s submission here which noted that the Court of Appeal ruling “goes too far” in its “sweeping approach” to treat motor dealer brokers as owing fiduciary duties to consumers. A judgment is normally expected within three to six months of an appeal hearing.
A few observations from the Bank of England’s (BoE) Money and Credit statistical release for February 2025 (published on Monday last here) are: i) annual rate of growth in net mortgage lending +1.9%; ii) net mortgage approvals for house purchase dropped by 600 m/m to 65,500 (and remortgaging approvals dropped by 800 m/m to 32,000), which is not surprising given (then) impending stamp duty regime changes; iii) annual rate of growth in consumer credit +6.4%; iv) household deposits were +£4.3bn in February following growth of £8.7bn in January; v) annual growth in large business borrowing +4.7% in February but annual growth in SME borrowing was -1.5%; and vi) business deposits reduced by £13.6bn in the month, following a reduction of £9.5bn in January. On household effective interest rates: i) mortgage drawdowns +2bps m/m to 4.53% (rate on outstanding stock of mortgages +6bps m/m to 3.87%); ii) interest-charging overdrafts -7bps m/m to 23.00%; iii) interest-charging credit cards -3bps m/m to 21.82%; iv) new personal loans -12bps m/m to 8.91%; and v) new time deposits +2bps m/m to 3.93% (while effective rates on outstanding stock of time and sight deposits were 3.66% and 2.09% respectively in February, down from 3.69% and 2.11% in January). On business effective interest rates: i) new loans to UK PNFCs -27bps m/m to 6.20%; ii) new loans to SMEs -10bps m/m to 6.90%; and iii) new time deposits from PNFCs -19bps m/m to 3.90% (and the effective rate on stock sight deposits was -11bps m/m to 2.46%). No major changes in trends or surprises here.
The Bank of England’s (BoE) Prudential Regulatory Authority (PRA) issued a news release on Monday here noting that it proposes to raise the deposit protection limit of the Financial Services Compensation Scheme (FSCS) from £85k to £110k. The associated Consultation Paper CP4/25 can be accessed here.
UK Finance published its 4Q24 Buy-to-let (BTL) mortgage market update on Wednesday here. In short, the value of lending volumes of £9.6bn was very strong in the quarter, +47.2% y/y. The average interest rate on new BTL loans was 5.09% in the quarter, -13bps q/q and -61bps y/y while the average interest coverage ratio (ICR) was 201%, +21bps y/y.
The Financial Ombudsman Service (FOS) published its 2025/26 case resolution targets on Thursday here - noting that it expects to resolve 20% more cases than in 2024/25.
Bloomberg reported here on HSBC’s (HSBA) annual presentation to shareholders in Hong Kong early this week (pre-US tariffs announcement), noting that Chairman Mark Tucker indicated his confidence in the financial targets despite geopolitical uncertainties and reiterated HSBA’s commitment to building its Asian businesses.
Lloyds Banking Group (LLOY) issued a RNS on Monday noting that Sharon Doherty (Chief People & Places Officer) disposed of 416,666 shares in LLOY on 31st March at a price of 72.0p per share - delivering gross proceeds of c.£300k.
Metro Bank (MTRO) issued a RNS on Monday here noting that the recently announced agreed sale of a portfolio of c.£584m of unsecured personal loans completed on 31st March. MTRO reconfirms that the deal is capital accretive and releases additional lending capacity for the bank to continue to progress towards its stated objective of shifting the loan mix to higher yielding business and specialist mortgage lending. Separately, MTRO issued a RNS on Tuesday noting that Nicholas Winsor (NED) acquired 100,000 MTRO shares on 31st March at a price of 90.0p per share for a gross outlay of c.£90k.
NatWest Group issued a RNS on Tuesday noting various director share sales as follows: i) Scott Marcar (Group CIO) sold 64,691 NWG shares on 28th March at a price of 457.3p per share for gross proceeds of almost £300k; ii) Jen Tippin (Group COO) sold 95,500 NWG shares on 28th March at a price of 461.5p per share for gross proceeds of almost £450k; and iii) Robert Begbie (CEO, NatWest Commercial & Institutional) sold 30,000 NWG shares on 28th March at a price of 460.0p per share for gross proceeds of almost £140k.
Sky News reported on Saturday here that former Treasury Permanent Secretary Sir Tom Scholar is being lined up as the next Chairman of Santander UK following William Vereker’s recent decision to step down early.
Schroders’ shareholding in Vanquis Banking Group (VANQ) increased to 18.11% (previously disclosed shareholding: 17.04%) following a transaction on 31st March.
Other Select Irish Newsflow
A few highlights from the past week:
The Central Bank of Ireland (CBI) published its Money and Banking Statistical Release for February 2025 on Monday 31st March here. On lending: i) net lending to households was +€79m in the month, and annual net lending flows to end-February 2025 were €3.4bn (implying strong growth of +3.4% y/y); and ii) non-financial corporate (NFC) net lending was +€173m, taking 12M net lending flows to +€198m (+0.7% y/y). On deposits: i) household deposits were +€624m in February to €161.9bn, taking 12M net deposit inflows to +€8.5bn (+5.6% y/y) which includes growth in overnight deposits of €0.8bn on a 12M lookback; and ii) NFC deposits were -€3.1bn m/m in February, taking 12M net deposit inflows to just shy of €2bn (notably, term deposits were +€3.1bn y/y). In overall terms we continue to see, in looking at annual data, decent broad-based growth in lending which is constructive in a bank loan book expansion context in what remains a positive macro backdrop for now - as well as a buoyant (albeit slightly slowing) environment for household deposit volume build.
Interesting to read the Central Bank of Ireland’s (CBI) research on Irish household deposit preferences here. As I have been writing for some time the CBI notes that “the share of overnight deposits in total has been close to 90 per cent in recent years, making Ireland an outlier in the broader euro area” - which is the predominant factor underpinning the exceptionally high returns that AIB Group (AIBG) in particular and Bank of Ireland Group (BIRG) have been generating. The research explores Irish households’ reluctance to lock their savings into term accounts, noting that a lack of sufficiently attractively priced term deposit products has been a key factor. That seems a logical conclusion - and I would also add that other reasons are, in my view, likely to be: i) high deposit interest retention tax rates of 33% on deposit income and low average individual household deposit volumes; ii) the time-consuming process to open accounts (in some cases you have to physically visit a branch and file lots of paperwork to obtain the higher-priced term deposit rates, which are only available up to a certain threshold in some cases); iii) no government-sponsored supports in a switching context (like the Current Account Switching Service (CASS), for example); and iv) the Irish psyche, as a country that is still relatively unaccustomed to wealth (and a country that suffered an enormous crash following the Celtic Tiger years), that the world could end tomorrow and that therefore one needs access to immediate liquidity. The CBI also published other research during the week here on how “average euro area households have now used up much or all of their excess bank deposits accumulated during the COVID-19 period, there is little evidence that this has occurred in Ireland”.
It was interesting to digest the Central Bank of Ireland’s (CBI) new Deputy Governor Elizabeth McMunn’s speech on Thursday here in which she set out a very balanced perspective on risk-based supervision and points to areas where standards can become simpler without any adverse impact from an outcomes perspective. These are comments that were likely welcomed by the broader financial services industry. Indeed, McMunn highlighted particular areas in which the regulatory burden is carefully reducing, i.e., the authorisations process, Fitness & Probity, operational resilience, and the refreshed supervisory approach - though some of these changes have become very clearly necessary (e.g., Fitness & Probity) so some in the industry will likely remain circumspect for the time being.
AIB Group (AIBG) published its AGM Notice on Monday afternoon - RNS here and AGM Document here. The Notice stipulates the terms on which the proposed directed buyback (DBB) - which would see the bank buy back government-owned AIBG stock (to be voted upon at the 1st May AGM) - is intended to be struck,. i.e., the higher of 626c per share; and (ii) a price per share equal to the volume-weighted average price (VWAP) for the five business days immediately preceding 1st May. Given that AIBG’s share price sat at 534c as at close of play on Friday I cannot see how shareholders could possibly vote in favour of this proposal unless the price were to quickly stabilise at a materially higher level close to / at / above the 626c level (the reason I include ‘close to’ is that some shareholders might vote in favour of a DBB at a marginal premium to the prevailing share price in a bid to see the State off the books asap). This seems, in my view, to have been a short-sighted move (in a bid to retrieve the full €20.8bn investment in the bank) given that the AGM Notice was circulated following a week which saw the stock price drift downwards by 10.6% - and with the impending US tariffs announcement in mind (though maybe it was just optimistic / opportunistic). While it now looks like the State won’t get the full €20.8bn back, that is a function of external developments - and the whole debate about ‘getting all the money back’ is pure political optics and utter nonsense to anyone in finance who learned on Day 1 of their college course about a concept called the time value of money. Furthermore, from a timing perspective, at worst it just delays things a bit in my view. The State has the option of just continuing to dripfeed stock into the market via the trading plan (at a run rate of c.1pp per month going on historical activity patterns) and, opportunistically, executing a placing / a freshly structured DBB (should the price recover perhaps) - which ought to see its shareholding fall to nil later this year. I’m not a company law expert but my understanding is that there is also a short window in which the AGM documentation can be altered but I would be shocked if we saw that given reputational preservation considerations.
Avant Money became a fully licensed bank in Ireland with effect from 1st April and is now the Irish branch of Bankinter.
The Irish Times reported on Saturday here that PTSB “…made an unsolicited overture…” to acquire Finance Ireland in late 2024 and remains interested in doing a deal. Industry sources indicated to the newspaper that any bid would be expected to be in excess of €300m. While it is not surprising to learn that PTSB is considering potential options to drive increased scale in a bid to diversify revenues and improve efficiency (though the article reads as if there are no live discussions underway here), whether or not a deal can be struck will likely come down to price. While the article indicates that the ‘overture’ was to acquire Finance Ireland it is not clear whether this is in relation to the issued share capital of the business or just the loan portfolios - the latter would logically seem more appropriate given: i) the multiples at which PTSB’s stock is trading; and ii) PTSB is presumably unlikely to have a desire to take on the Finance Ireland platform / cost base given its own operating infrastructure ought to be capable of servicing the customer base.
Global Snippets
A few highlights from the past week:
The European Banking Authority (EBA) published its annual assessment of banks’ internal approaches for the calculation of capital requirements on Friday here. For credit risk, the variability of RWAs remained stable compared to the previous year, but a reduction could be observed in the longer run for some asset classes and parameters.
Bloomberg reported on Monday here that the European Commission (EC) has said that it wishes to maintain current regulations with respect to short-term financing transactions rather than tighten them - as had been planned at the end of June.
Interesting piece on Bloomberg on Monday last here on how a recent consultation issued by the International Organization of Securities Commissions (IOSCO) that envisages tightening up pre-hedging regulations (i.e., where a dealer uses information from an investor about a planned trade to place their own order beforehand) has met with some industry resistance.
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