Financials Unshackled Issue 43: Key UK / Irish / Global Banking Sector Developments Review
The independent voice on banking developments - No stockbroking, no politics, no nonsense!
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Welcome to the latest issue
Welcome to Financials Unshackled Issue 43. If you are in the UK or Ireland I hope you are still enjoying the long weekend. Following a long Easter break I am back in action and this is the first of two notes that will issue early this week. This Issue 43 covers select key UK / Irish / Global banking sector-focused developments that have emerged since Issue 42 in early April. The note packs in a lot so I have structured it as follows: i) reflections on three key themes of note (tariff turbulence, consolidation, ringfencing); and ii) other highlights in a UK / Irish / Global banking sectoral context (mainly headlines with links to the relevant articles / reports / etc.).
A separate Issue 44 will land in your inboxes early this week, setting out a review and analysis of recent UK and Irish banks’ results (for the listed banks as well as some unlisted banks) - together with select recent company news.
If you prefer an audio version of this article click ‘READ IN APP’ above and then press the PLAY button.
Note that I am in London from Monday 12th through Thursday 15th May with some availability to meet- please send an email to john.cronin@seapointinsights.com if you would like to catch up in person.
Tariff turbulence moderates
The past few weeks have seen an easing in investor concerns in relation to the long-term impacts of US tariffs on UK & Irish bank valuations - with question marks more broadly around the ultimate longevity of the changes that the Trump administration has effected / has indicated that it may effect. Share prices have recovered quite strongly - and, taking a crude 4-week lookback, UK banks are up between 9% (LLOY) and 25% (PAG) while Irish banks are up between 7% (BIRG) and 16% (PTSB). Of course other developments, including solid 1Q results updates from banks in both jurisdictions (the subject of a separate Financials Unshackled Issue 44) have been influential in terms of share price evolution too.
That being said it appears that (some) tariffs are here to stay and there are a few important points / developments to flag in that context:
No changes in FY25 guidance amongst the UK or Irish banks owing to tariff changes (though downward movements in official rate expectations have implications for post-FY25 consensus numbers).
The impact of tariffs was a question mark (to a greater or lesser extent) on all earnings calls through the 1Q period with some banks (e.g., HSBA) pushing through incremental expected credit loss (ECL) provision charges to reflect associated economic uncertainties.
Sam Woods, CEO of the Bank of England’s (BoE) Prudential Regulation Authority (PRA) noted to the House of Commons Treasury Select Committee (TSC) on Tuesday last (you can watch the replay here / read an article from FT on it here) that an expected macro slowdown is likely to lead to higher loan loss provisions: “We are watching it very closely…The thing we are watching for next is also what will be the macro impact of all this…I think it will be interesting to see whether our banks in the next period choose to provide more for a different economic environment because they do forward-looking provisions now…So that is where our focus is at the moment.”. However, Woods expressed most concern in relation to the potential contagion risk from a funding perspective - adding that “That is what we really care about and we didn’t really see any sign of that”.
Understandably, there has been quite an intense focus on the matter in an Irish banking sector context given the reliance of the Irish Exchequer on US multinationals for fiscal revenues and employment - despite the fact that Irish banks’ lending exposures to these multinationals is contained. S&P Global Market Intelligence picked up on the risks here on 11th April - noting that the Irish banks’ strong asset quality levels, capitalisation, and profitability position them well to cope with any fallout. The Sunday Independent, on 27th April, picked up on Barclays’ analysts research which noted that Irish banks are “more exposed” to tariffs and declining official rates than their European peers and pointed to a potential pick-up in provisioning (which we didn’t see through the subsequent 1Q reports season). Finally, I penned a piece for the Business Post here on the Irish banks’ 1Q25 updates, which picked up, in qualitative terms, on the strength of provisioning (particularly in the case of AIB Group (AIBG) and PTSB). There is likely to be a considerable focus over the coming months on what measures will be imposed on the pharmaceuticals sector (given the significance of pharma exports in an Irish context) following the Section 232 national security investigation that the US Department of Commerce has initiated - a useful summary I came across on this investigation from Pillsbury is here.
Consolidation in focus
Consolidation is a perennial focus point in a UK banking market context particularly and there has been a surge in chatter in recent months with a sense (amongst investment bankers at least) that the UK market is primed for a wave of further M&A upon more regulatory clarity (e.g., ringfencing, MREL) later this year.
There have been some notable developments / news items in a UK market context over recent weeks, which I summarise below:
Barclays (BARC) has (finally) entered into a long-term strategic partnership with Brookfield Asset Management in relation to its payments (merchant acquiring) business - see company press release of 17th April here for details. As previously reported by Sky News on 7th March here, BARC will inject c.£400m of funding into the business - the majority of which will be invested over the first three years of the partnership. Brookfield will provide expertise to support a transformation of the business and will be entitled to a financial incentive. After Year 3 of the partnership, and up to its 7th anniversary, Brookfield may acquire a 70% shareholding in the business at a market value to be determined at the time (the “Sale”) - and, upon the Sale, Brookfield’s initial financial incentive (referred to above) will convert into an additional 10% shareholding - taking Brookfield’s total shareholding to 80% upon completion of the Sale. While the partnership is not expected to have any material impact on BARC’s guidance or financial targets, one can see the strategic rationale and longer-term prospective benefits for BARC by virtue of entering into this agreement: i) brings in deep expertise - given Brookfield’s private equity expertise in payments, technology and transformation - to transform and scale the business; ii) BARC management made a substantive effort in recent years (prior to the writedown taken in the FY23 accounts) to get the market to reflect the value of a growing payments business in its equity valuation with, arguably, limited success given size issues in the context of the wider Group - and a transaction like this, that should see the business grow as well as prompt analysts to think separately about the business given a potential impending crystallisation event, ought to, in time (to the extent that more financial information is procured), lend itself to analysts seeking to strip out this business when valuing BARC and ascribe a separate ‘sum-of-the-parts’-type valuation of it, which could potentially drive stock valuation enhancement in time; iii) BARC ought to benefit significantly from the transformational and scaling efforts in a 70% shareholding sale scenario (between Years 3 and 7), which management presumably assumes is likely to present a more superior potential outcome than a full share sale in the near-term, for example (and preserves the possibility of a ‘blue sky’ outcome for BARC); and iv) through the expected retention of a c.20% shareholding in the business, BARC remains eligible to retain an interest in the prospective long-term success of the business (which also serves as an anti-embarrassment clause).
Bloomberg reported on 22nd April here that Banco Santander is planning to reorganise its UK operations, seeking regulatory approval to move the consumer finance business out of the Santander UK plc subsidiary. Hector Gris (Santander CFO) noted on the 30th April earnings call that the intended split is “exactly what we’re doing in the rest of the world…to fund it [consumer bank businesses] in a different way”. Indeed, the proposed change is also consistent with Santander’s previous statements to the effect that its goal is to achieve a “single model across our markets for our consumer and auto finance businesses”, as reported in the Bloomberg article of 22nd April. However, without getting drawn back into the zone of speculation as to the wider question in relation to whether Santander will seek to sell the UK business at some point, I will offer the following views: i) Santander UK is largely a consumer bank anyway if you count mortgages within that; ii) to the extent that such a split is effected it would surely make a sale of the UK bank easier to achieve (the motor finance book could be serving as a ‘poison pill’ in a prospective sale context - either eliminating the appetite of some would-be acquirers to transact and/or depressing the valuation multiple that the business can reasonably expect to achieve); and iii) coupled with the separate news that has emerged in recent weeks to the effect that Santander is in discussions with Erste in relation to the potential sale of a 49% shareholding in Santander Polska (confirmed by the company on 28th April here), it only adds further speculative fuel to the fire in a possible UK bank sale context - management is clearly not afraid to divest where it sees fit and the entry into those discussions is consistent with management’s ambition to expand its footprint in the Americas while reducing its weighting towards Europe.
Financial News reported here on Monday 7th April that Shawbrook Bank’s owners, BC Partners and Pollen Street Capital, have decided to delay IPO plans for the bank in the wake of tariff turbulence. This is not entirely surprising and Shawbrook is, by no means, the only prospective flotation candidate that has seen its plans frozen in recent weeks. Sky News subsequently reported here on 23rd April that Shawbrook has made a tentative “highly preliminary” approach to Starling Bank in relation to a potential £5bn merger (which presumably contemplates a c.£2.5-3.0bn valuation for Starling given the mooted >£2bn valuation ambition in Shawbrook’s case - see Sky News article here on this from 4th January) - and while no live discussions are reported to be taking place, the article notes that “the door has been left ajar for Shawbrook to return with a formal offer”. A valuation of c.£2.5-3.0bn for Starling would be well short of the £10bn valuation that Starling’s investors were reported (see FT article of 27th May 2024 here) to be targeting though it must be said that there was widespread cynicism to the effect that anything close to such a valuation would be achievable - as reflected in the readers’ comments on the above linked FT article from last year, which are well worth a browse. Indeed, the Sky News article from 23rd April notes that “Many Starling investors believe the company is worth at least £3bn and would prefer to hold out for a higher valuation as its technology platform, Engine, continues to grow” (notably, Finextra reported on 15th April here that Starling is opening a US subsidiary to sell its Engine tech infrastructure platform to US mid-tier banks, community banks and credit unions). In terms of a prospective combination of the two, the marriage of a mainstream lender (Starling) with a specialist lender (Shawbrook) presents clear benefit for both sides as I have previously written about in the context of other names. Marrying Starling’s current account capabilities with Shawbrook’s proven access to debt capital markets and its ability to grow an easy access and term deposit franchise is an obvious synergy; the overlap of the two businesses in a commercial banking context would appear to be logical (as the Sky News article remarks); and, last but by no means least, the tech capability of both banks could be quite synergistic in terms of operating leverage capture in a scaling context (as well as combined outright opex shrinkage). However, to state the obvious, transactions like these are notoriously cumbersome in terms of restructuring, operational integration, and potential cultural clashes too. But a sizeable more valuable entity with a potentially more compelling and diverse (and validated in a maturity transformation context by bringing in Shawbrook’s years of independent origination - and selective value-creating acquisitive prowess) growth story could be just what the banking IPO market needs to get going again in due course! Like everything, price is the pinch point.
Sky News broke the news here on 24th April that NewDay, which is owned by Cinven and CVC, has received expressions of interest from a number of third parties including Pimco, KKR, and a Bain Capital-led consortium which also includes Centerbridge - with formal bids expected to be tabled “in the coming weeks”. Some bidders, including Pimco, are reported to be interested in an acquisition of the consumer book only while others are said to be interested in acquiring the company wholesale. Sky News reported here on 7th November last that NewDay’s owners were commencing preparations for a dual track process (sale / IPO) that could value the business at >£1.7bn. The latest Sky News article notes that, should NewDay’s owners decided to pursue a flotation instead of a disposal, a number of banks are expected to be hired alongside Barclays, whose appointment is reported to be imminent. It sounds like the decision as to whether or not to pursue an IPO will be influenced by where the first round offers are pitched in the context of price and terms - though the wider appetite for UK IPOs in today’s uncertain market backdrop will naturally be a key decision input too.
Finally, Sky News (again!) reported here on 18th April that a number of third parties have held discussions recently with Close Brothers Group (CBG) about a possible acquisition of its Winterflood business - with the article noting that UBS is advising CBG on the potential disposal. CMC Markets (CMCX) is said to be one of the potential bidders - “plotting a £40m raid on Winterflood”. In the aftermath of this press report The Wall Street Journal reported that analysts at KBW noted that Winterflood isn’t relevant to the CBG investment case any more but noted that it is difficult to see why management would sell at this level (presumably referring to the £40m suggested by the Sky News article) given the ensuing small capital hit. It stands to reason that CBG would consider potentially offloading Winterflood, an independent and separable business, in a bid to remove itself of what is (currently) a loss-making business and to minimise management distraction. However, CBG will also be keen to avoid a meaningful hit to capital upon any such disposal so it seems that price is paramount here. Indeed, the comment in the Sky News article to the effect that “People close to Close Brothers said it was not certain that it would offload Winterflood, and would only do so if it could secure an attractive valuation” also stands to reason - as CBG is not a ‘forced seller’ (for now at least). Of course, it may just be a fact-finding exercise serving to: i) generate some competitive tension for the business that could be disposed of if the price achievable is highly attractive; or ii) establish the prospective predator price point now that serves as an anchor / valuable information in the event that CBG elects to sell the business at a later stage, perhaps out of necessity (thereby potentially limiting the scope for lowball bids at a subsequent stage should CBG find itself a forced seller in the future).
Furthermore, some notable news / developments in a European and Irish market context over recent weeks are:
The Danish Compromise has been in much focus in the wake of the ECB's issuance of a negative opinion in March on Banco BPM’s request to apply the capital relief measure in its intended acquisition of the asset manager Anima. Claudia Buch, Chair of the ECB’s Supervisory Board, noted in a Bloomberg television interview that “Our interpretation is that it’s intended to be applied to the insurance sector and not to, for example, asset management undertakings”. Bloomberg reported here on 11th April that the ECB has also taken a view that BNP Paribas’ permission to apply the Danish Compromise in its intended acquisition of Axa Asset Management is restricted. However, a subsequent report on Bloomberg of 14th April here noted that BNP Paribas’s assessment of the expected capital hit associated with the mooted acquisition was less than what analysts had expected, driving a nice uplift in its share price that morning. The FT Alphaville column followed up on these developments with an excellent piece of reporting here entitled ‘The trouble with Danish, squared’ on 23rd April - which is well worth a read, opining that the expected capital hit calculated by BNP Paribas might indicate “that the ECB isn’t fully committed to a full deduction...So perhaps they are anticipating that there is some halfway house to be achieved with the ECB”. If interested in reading more on the topic, I suggest: i) Another Bloomberg piece of 14th April here; ii) Reuters piece of 17th April here; and iii) FT Lex piece of 28th April here.
The European Central Bank’s (ECB) supportive stance in a banking M&A context was evident again in an ECB LinkedIn post of 25th April here. Some key excerpts worth noting are: 1) “Bank consolidation can play an important role in removing excess capacity, enhancing cost efficiency and promoting more focused and credible business models. Cross-border consolidation could also support greater risk diversification and contribute to financial market integration, an important objective within the banking union.”; and 2) “The ECB has no bias against size and does not discourage banks from becoming bigger on principle.”. The piece is worth a read for a very basic outline of how the ECB examines any such M&A proposals.
S&P Global Market Intelligence reported on 16th April here on how tariff turbulence is clouding the outlook for European banking M&A activity.
The Irish Times reported on 19th April here on whether a deal can be struck between PTSB and Pimco with respect to Finance Ireland (in which Pimco owns a 51% shareholding). The article notes that there is “a yawning price expectations gap between both sides”. I was pleased to contribute to the piece, noting that “There would be revenue diversification benefits as well as funding and operating cost synergies in the event of an acquisition of Finance Ireland by PTSB but the bank’s investor base is unlikely to be keen to see management agree to pay up significantly for these”. It was particularly interesting to note Eamon Waters’, the owner of the Sretaw investment vehicle (which has a c.7% shareholding in PTSB), comments in the article as follows: “Given their high funding costs and the resultant drag on profitability stemming from being a nonbank lender, the strategic logic for Finance Ireland being owned by an entity with access to cheaper funding is very strong” with the article going on to note that Sretaw claims Finance Ireland would find it difficult to command a valuation in excess of €100m unless recent results and the business plan were to “show a step change in prospects”.
Banks push back against ringfencing rules
Sky News broke the story on Saturday 26th April here that the chiefs of HSBC (HSBA), Lloyds Banking Group (LLOY), NatWest Group (NWG), and Santander UK have written a hard-hitting letter to Chancellor Rachel Reeves urging her to abolish the ringfencing rules. The letter reportedly notes that the ringfencing “is not only a drag on banks' ability to support business and the economy, but is now redundant”.
The Sky News article quotes the further following remarks from the letter: “With global economic headwinds, it is crucial that, in support of its Industrial Strategy, the government's Financial Services Growth and Competitiveness Strategy removes unnecessary constraints on the ability of UK banks to support businesses across the economy and sends the clearest possible signal to investors in the UK of your commitment to reform…While we welcomed the recent technical adjustments to the ring-fencing regime, we believe it is now imperative to go further…Removing the ring-fencing regime is, we believe, among the most significant steps the government could take to ensure the prudential framework maximises the banking sector's ability to support UK businesses and promote economic growth…Ring-fencing imposes significant and often overlooked costs on businesses, including SMEs, by exposing them to banking constraints not experienced by their international competitors, making it harder for them to scale and compete…Lending decisions and pricing are distorted as the considerable liquidity trapped inside the ring-fence can only be used for limited purposes…There has been a material decline in UK wholesale banking since ring-fencing was introduced, to the detriment of British businesses and the perception of the UK as an internationally orientated economy with a global financial centre…The regime causes capital inefficiencies and traps liquidity, preventing it from being deployed efficiently across Group entities…Corporate customers whose financial needs become more complex as they grow larger, more sophisticated, or engage in international trade, are adversely affected given the limits on services ring-fenced banks can provide…Removing ring-fencing would eliminate these cliff-edge effects and allow firms to obtain the full suite of products and services from a single bank, reducing administrative costs.".
It has been reported that HSBA (HSBC) CEO Georges Elhedery led the work on the letter, which calls on the Chancellor to take the opportunity to use this summer’s Mansion House dinner to set out “a clear statement of intent…to abolish ring-fencing during his Parliament”. One notable absentee from the signatory list was that of the Barclays (BARC) CEO - who argued in favour of retention of the ringfencing rules at the stage of the bank’s 1Q25 results update on Wednesday 30th April, noting that “Ringfencing helps depositors by segregating the liabilities and the assets and makes it easier to make depositors whole”. However, the cynic would say this is just BARC’s attempt to preserve what is a competitive advantage - indeed, the abolition of ringfencing could open the market
There was then a highly consistent well-rehearsed message through the 1Q results season from the executives of the banks that signed this letter, i.e., the UK is the only jurisdiction that has ringfencing rules, the Skeoch review concluded that the recovery and resolution regime that followed the ringfencing regulations was more effective than ringfencing, ringfencing adds to the cost and complexity of serving customers (especially larger ones) and impacts adversely on banks’ ability to support economic growth, and there are existing embedded depositor protection mechanisms outside of the ringfencing regime. Bloomberg published a good follow-up piece on Saturday 3rd May here.
The Labour government has made a loud commitment to economic growth. Public finances and the seemingly perpetual productivity issues - and now tariffs - mean this is a significant challenge. Following Reform’s success at the local elections pressure will inflate. Anything outside of the bare necessities that stands in the way of potential economic growth is likely to be on the agenda for re-examination. My view? Ringfencing could go. It should - the BoE’s own Resolvability Assessment Framework, together with other measures, confers adequate protection.
UK Banking - Recent Developments: Sector Focus
Select Sector Developments (in reverse chronological order)
Rightmove published updated current UK mortgage rates on Saturday 3rd May here. The average 2Y fixed rate of 4.68% (spread of 81bps over 2Y swaps) is -6ps week-on-week and -73bps y/y while the average 5Y fixed rate of 4.62% (spread of 72bps over 5Y swaps) is -4bp week-on-week and -39bps y/y.
The Bank of England (BoE) published Money and Credit statistics here and Effective interest rates data here for March 2025 on Thursday 1st May. The main take-aways were: i) net borrowing by households grew across all categories (mortgages, consumer credit) in the month - with a sharp increase in net mortgage borrowing to £13.0bn from just £3.3bn in February as homebuyers moved to transact ahead of changes to the stamp duty regime in April; ii) net mortgage approvals for house purchases reduced by 800 m/m to 64,300; iii) Private non-financial corporates (PNFCs) net repayments were £1.5bn in March, following net repayments of £1.0bn in February; iv) household deposit volumes rose by £7.4bn in March (+£5.0bn in February); v) business deposit volumes were +£15.7bn in March following net withdrawals of £13.6bn in February; and vi) effective interest rates on lending were down a little m/m while effective interest rates on new term deposits rose a little.
The Bank of England (BoE) published a Consultation Paper (CP10/25) on 30th April here which sets out proposals to enhance banks’ and insurers’ approaches to managing climate-related risks. David Bailey (Executive Director, Prudential Policy) gave a speech discussing the opening of the consultation period on the same day - transcript here. A key proposal is that banks and insurers to undertake internal reviews on climate risk and the regulator will check on how effectively the guidelines are being implemented six months later.
The UK Government published new proposed cryptoasset rules on Tuesday 29th April - press release here and Draft SI & Policy Note here. The proposed rules will apply to exchanges and brokers but will not apply to overseas issuers of stablecoins.
A new five-year partnership has been entered into between the Post Office and UK’ banks and building societies, which will ensure access to cash for individuals and small businesses at Post Office branches from January 2026 until December 2030. You can read further about it in a 30th April article in Post & Parcel here.
Allica Bank published new research on Monday 28th April (ahead of Innovate Finance’s IFGS event - for Fintech Week) which shows that a “multi-generational shift in bank lending” has opened up a gap of up to £65bn in SME credit since the turn of the millennium - with a particular “collapse” in overdraft lending to small businesses, which dropped from £18bn in 2000 to just £2.7bn in 2024. You can read the Allica Bank press release here, the report here, and a piece on this research in The Times here.
pay.uk published latest current account switching data (on behalf of CASS, the Current Account Switching Service) here on 24th April (dashboard here) - there were 222,805 switches in 1Q25, taking the 12-month total to 1.09 million switches. This is down significantly (-31%) on 1Q24 (see here) when there were 320,634 switches.
The Bank of England published its Credit Conditions Survey here and its Bank Liabilities Survey here for Q1 2025 (the three months to end-February) on 17th April. The surveys were conducted between 3rd and 21st March 2025 - so, prior to ‘Liberation Day’. In overall terms both supply and demand of loan product increased in the period with expectations that supply will increase in Q2 (save for corporate credit) and so too will demand (though one exception was that demand for lending for SMEs was expected to be unchanged in Q2). Retail deposit funding volumes grew in Q1 and are expected to strengthen further in Q2 - as we heard from the larger lenders through the 1Q results season, and may indicate some further expansion in the size of structural hedging programmes later in the year. On pricing: i) spreads on mortgages narrowed in Q1 (we heard this from the large lenders in their 1Q updates - albeit the decline in completion margins was marginal) and are expected to remain flat in Q2; ii) spreads on unsecured lending grew in Q1 and are expected to expand further in Q2; iii) spreads on corporate lending reduced slightly in Q1 and are expected to contract slightly again in Q2; iv) the cost of retail deposits increased slightly in Q1 and is expected to rise again in Q2.
Excellent piece penned by John Gapper in the FT here on 15th April on how the closure of subprime lenders has shut off access to credit to a large cohort of the population - with a substantial rise in illegal lending an obvious consequence (with Fair4All Finance reporting that 3.3 million people used illegal lenders over a three-year period). Notably, the article flags LEK Consulting’s estimate to the effect that there are 16 million people in the UK who cannot access prime credit, leaving a credit gap of £2bn. This is a significant market opportunity but is contingent on a strong sense of stability in the context of the associated regulatory framework.
The Prudential Regulation Authority (PRA) published its 2025/26 Business Plan here on 10th April. No great surprises in it but it emphasises the various simplification initiatives that will be a key focus of the PRA’s work in the year.
His Majesty’s Treasury announced the reappointment of Nikhil Rathi as CEO of the Financial Conduct Authority (FCA) for a second term. The move has been broadly welcomed by the banking industry in a continuity context and Rathi has proven strong in dealing with the political agenda. The FCA release of 10th April announcing the reappointment can be located here.
The Bank of England’s (BoE) Prudential Regulation Authority (PRA) issued a Dear CFO letter to lenders on 9th April here, highlighting concerns in a significant risk transfer (SRT) financing context (FT piece here from 14th April too). The letter notes that “We have identified that for certain financing portfolios, banks have adopted an imprudent approach associated with the recognition of collateral for regulatory capital purposes, resulting in a potential undercapitalisation of the risks”. The NatWest Group (NWG) CEO took a question on this development on the bank’s 1Q25 earnings call on Friday 2nd May - and noted that the letter was focused on financing SRT deals in trading books so it appears to have no meaningful implications from a NWG perspective - and that, to be clear, NWG doesn’t finance any of its own SRT transactions (Anna Cross, the Barclays (BARC) Finance Director, also made this point, i.e., that BARC doesn’t finance its own SRT trades on its 1Q25 earnings call on Wednesday 30th April).
The Bank of England (BoE) published, on 9th April, the record of the Financial Policy Committee (FPC) meetings held on 4th and 8th April - here. It’s old news now but worth noting that: i) the FPC maintained its judgment that the UK banking system has the capacity to support households and businesses, even if economic and financial conditions were to be substantially worse than expected; and ii) UK household and corporate borrowers have remained resilient in aggregate.
Note that company news will be covered in Financials Unshackled Issue 44 early this week
Irish Banking - Recent Developments: Sector Focus
Select Sector Developments (in reverse chronological order)
While Financials Unshackled Issue 44 will round-up on company-related news, it is worth flagging that AIB Group’s (AIBG) shareholders voted overwhelmingly in favour of the directed buyback proposal at the company’s AGM on Thursday 1st May. As the bank’s 1Q25 trading update noted, the proposed transaction (which relates to a DBB at a minimum price of 626c per share) will be subject to: i) the Board’s determination that such action is in the best interests of the Company; and ii) receipt of written confirmation from the Company’s UK sponsor that the terms of the proposed arrangement are fair and reasonable as far as the independent shareholders are concerned. The share price closed up a bit again at 599c on Friday and, assuming that it remains somewhere in the high 500’s territory, it seems likely the transaction will go ahead - with the Board and AIBG’s UK sponsor likely to proceed, balancing: i) the positive unquantifiable benefits for shareholders in seeing the State fall off the share register sooner if the DBB proceeds; ii) the sustainable eps accretion impacts of a share buyback; and iii) the contained one-off capital loss for the shareholders who do not get to participate in a DBB transaction at a price above the market price of their own shareholding(s) should the share price rest below 626c at the stage of the DBB so, presumably the Board and the UK sponsor will have a view on a ‘floor price’). The reason I bring it up in this piece rather than wait until Issue 44 is because, should the DBB transaction proceed and the AIBG share price hold up at these levels for a few more months, then it looks like the State will recoup its entire €20.8bn investment in the bank (taking account of the warrants valuation too).
The Central Bank of Ireland (CBI) published Money and Banking Statistics for March 2025 on Wednesday 30th April here, reporting positive trends in both a lending and deposit-gathering context. Lending growth was seen in all household lending sub-segments on both a m/m basis and on a 12M lookback basis - with mortgage lending outstanding +3.7% over the last 12M. Business lending was marginally down m/m but up slightly over the 12M to end-March 2025. Deposit volumes continued to grow - with household deposits +€409m in the month (+€7.9bn over the 12 months to end-March) and non-financial corporate (NFC) deposits +€574m in the month (+€2.9bn over the 12 months to end-March).
Banking & Payments Federation Ireland published its Mortgage Drawdowns Report for 1Q25 here and its Mortgage Approvals Report for March 2025 here on Tuesday 29th April. Both reports point to positive momentum in the market - with drawdowns by value +19.1% y/y in 1Q25 and the value of mortgage approvals +29.7% y/y in March.
The National Competitiveness and Productivity Council (NCPS) published a review on economic competitiveness on 29th April, which found that further work is needed in retail banking competition and housing. In a banking context particularly, the NCPC raised its concerns around higher-than-euro area average rates on loans to SMEs.
The Fintech Payments Association of Ireland (FPAI) published the findings of a new Irish fintech survey on 24th April - noting that 42% of firms reported that they plan to seek additional funding and 91% plan to hire this year. More detail here.
The Sunday Independent on 20th April reported here on David Malone’s, CEO of the Irish League of Credit Unions (ILCU), comment to the effect that credit unions could soon be lending €1bn per annum to Irish homebuyers. More funding for homebuyers is welcome but there will be mixed views on the appropriateness of this. Separately, the Central Bank of Ireland (CBI) published an update on the Financial Conditions of Credit Unions on 25th April - press release here and report here - which shows that gross credit union sector outstanding loans sat at €7.1bn at 30th September, 87% of which is represented by personal loans and 10% of which is represented by mortgage lending.
Banking & Payments Federation Ireland (BPFI) published the findings of its Consumer Financial Management Survey on 18th April which notes that most consumers have not reviewed their bank account terms and conditions in past year while over 40% have not checked account fees and charges.
The Irish Times reported on 16th April here that S&P Global Ratings has seen a pick-up in mortgage arrears on reperforming loans held in residential mortgage-backed securities (RMBS) deals - with 25.7% of such loans in arrears at the end of December, up from just 8.4% in January 2022 following the rise in interest rates over recent years. To be clear, these are mortgages which are predominantly held by investment funds; not banks - i.e., mostly loans that were offloaded by the banks in their NPL reduction efforts. Notably, The Irish Times published a follow-up piece on Monday 21st April here, reporting that Pepper Advantage, the largest servicer of Irish mortgages acquired by investment funds, said it has not observed the pick-up in arrears reported by S&P Global Ratings.
The Irish Independent reported here on 15th April that Social Democrats’ housing spokesperson Rory Hearne has argued that a state-backed savings account with higher interest rates for Irish households could deliver the capital to support affordable homebuild. Despite Hearn’s strong credentials as an economist, it feels like the proposal will just be ignored given it is not emerging from a mainstream voice. Besides, government has been extremely hesitant to do anything that would erode bank profitability. Moreover, it is unclear if the current government is capable of moving forward definitively to resolve the housing shortfall - with the latest saga surrounding the intended appointment of a ‘Housing Czar’ and the unresolved bottlenecks in a planning and judicial reviews context springing to mind.
The Central Bank of Ireland (CBI) published here its Retail Interest Rates statistical release for February on 9th April. Both loan and deposit pricing continued to fall and Ireland remains 5th highest in the eurozone from a mortgage originations pricing perspective (weighted average rate on new Irish mortgage agreements at end-February of 3.79% versus euro area average of 3.33%).
Note that company news will be covered in Financials Unshackled Issue 44 early this week
Global Banking - Recent Developments
Sector Developments (in reverse chronological order)
The European Banking Authority (EBA) launched a public consultation on the types of factors to be considered by national authorities in assessing the appropriateness of real estate risk weights on 30th April and you can access it here.
Bloomberg reported on 26th April here that the ECB has launched a task force to consider how banking regulation could be simplified in Europe (with a key plank of the proposals understood to be reducing the number of banks under direct supervision at the ECB - with a 29th April article on Bloomberg here worth reading for some more detail) amidst fears that Europe is falling behind. Reuters also picked up on this news here. Indeed, Luis de Guindos, Vice-President of the ECB noted in a speech in Brussels on 28th April (transcript here) that “The ECB supports efforts to simplify the regulatory framework. However, this should not be confused with deregulation.”. For what it’s worth de Guindos also called again for decisive action to move closer to completing the banking union, which “includes an effective crisis management and deposit insurance framework that extends to small and medium-sized banks, and progress on a European deposit insurance scheme” - and he also called for “robust rules” to be applied to non-banks. This move to establish a task force is likely to drive tensions with the ECB Supervisory Board and when Sharon Donnery, ECB Supervisory Board Member, spoke in Frankfurt on 29th April (transcript here), the main focus of her comments was on defending the current suite of banking regulations, noting that “rules should be as simple as they can be, but no simpler. Any efforts to simplify should remain fully aligned with the objective of achieving a full, timely and faithful implementation of Basel III.” while accepting there may be scope for more proportionality in the European regulatory framework.
Claudia Buch, Chair of the Supervisory Board of the ECB, spoke in Washington DC on 25th April (transcript here) on how safeguarding the stability of global banking systems must remain supervisors’ main priority in a push for continued international cooperation to ensure that the global financial system remains resilient.
The European Banking Authority (EBA) published key indicators on climate risk in the EU/EEA banking sector on 25th April - press release here and ESG Dashboard here.
Bloomberg reported on 25th April here on a survey conducted jointly by the Institute of International Finance (IIF) and the International Swaps & Derivatives Association (ISDA) which has found that a majority of banks want the EU to postpone the adoption of new trading book rules, i.e., the Fundamental Review of the Trading book (FRTB) changes.
Sharon Donnery, Member of the ECB Supervisory Board spoke in Washington DC on 24th April on bank supervision. Her speech (transcript here) highlighted vulnerabilities in the commercial real estate (CRE) and automotive sectors with banks’ associated provisions not appearing to sufficiently reflect downside risks - which she attributes to persistent shortcomings in the IFRS 9 provisioning framework. Donnery also picks up on risks attached to digital transformation initiatives.
Daniel Davies, Managing Director at Frontline Analysts, penned an interesting op-ed in the FT on 19th April here on how geopolitics is undermining the global system of financial regulation. It stands to reason that harmonised rules are a necessary ingredient in what is an international industry occupied with large players who have significant multi-jurisdictional presence.
Bloomberg reported on 17th April here that Petra Hielkema, the Chair of the European Insurance and Occupational Pensions Authority (EIOPA) recently commented that recent market volatility calls into question the safe haven status of US Treasuries. In a somewhat interrelated vein, Sheila Bair, the former Federal Deposit Insurance Corporation (FDIC) Chair, penned a piece in the FT on 23rd April here setting out her objections to Scott Bessent’s suggested loosening of leverage limits and eliminating those restraints entirely for investments in short-term Treasuries. In a UK context, Simon Hills, former Director of UK Finance, penned a piece on LinkedIn on 26th April here arguing again that ‘riskless’ government bonds (at least domestic government bonds initially) should be exempt from the Leverage Ratio in the same way that cash reserves held at a central bank are currently exempt from the PRA’s Leverage Exposure Measure, and its associated buffers. It might be a step too far in the current environment I suspect.
Bruegel published an interesting Working Paper on the importance of bank capital on 15th April - press release here and full paper here. The authors conclude that: “A detailed look at current banking regulation does not support the conclusion that European banks are more strictly regulated overall than US banks. A direct comparison suggests rather the opposite. However, the compliance cost incurred by EU banks from current banking regulation can be reduced by simplifying EU rules.”.
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