Financials Unshackled Issue 46: Week In Review (UK / Irish / Global Banking Developments)
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Welcome to Financials Unshackled Issue 46, which covers key UK & Irish and select Global banking developments over the last week and is structured as follows:
Key Developments Review (London fintechs IPO outlook, UK specialist bank updates, Is Santander UK for sale or not?, Irish deposit market competition)
Other Notable Newsflow (split between UK, Ireland, and Global)
W/C 19th May Calendar (UK & Ireland focus)
I’m back from a week in London meeting various industry constituents - with a lot of focus on what’s on top bank executives’ minds, the perennial topic of prospective consolidation, and the evolving regulatory backdrop. Send me an email at john.cronin@seapointinsights.com if you want to catch up on general themes.
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Key Developments Review
Could we see a wave of fintech IPOs in London?
Following last week’s press on a potential Monzo IPO in 1H26, Sky News reported here on Tuesday that City Minister Emma Reynolds (Economic Secretary to the Treasury) met with executives from ClearScore, Monzo, OakNorth, Revolut, and 10x Banking Technologies that morning to persuade these companies to list their equity in London. She was accompanied at the meeting by Dame Julia Hoggett (CEO of London Stock Exchange plc) and Simon Walls (Interim Executive Director, Markets at the FCA). A Treasury spokesperson noted to Sky News that “We are determined to make Britain the best place in the world to start up, scale up and list. "That's why we are cutting red tape, ensuring businesses can access the capital they need to grow and supporting the country's most exciting companies to thrive through our industrial strategy.”.
Peel Hunt also issued a well-timed note last week arguing the case for fintech IPOs - which flagged a potential Allica Bank listing at some stage too - with its analysts arguing “These are no longer just digital interfaces; indeed, they are becoming full-stack banks”, according to a CityAM report on the Peel Hunt note here (notably CityAM also reported on Monday last on a potential IPO of Zilch here and that the savings and investment platform Moneybox is preparing for a potential IPO here). Some would beg to differ and there are significantly mixed views on UK fintechs’ / digital banks IPO prospects. One also has to be conscious of the vested interests prevailing at brokerage firms in relation to prospective IPOs. Indeed, the typically upbeat CEO of Zopa Bank recently expressed scepticism in relation to the receptivity of the market towards bank / fintech IPOs (though, notably, Zopa Bank issued its inaugural AT1 bond last week raising £80m - and Zopa Group Limited will re-register as an unlisted public limited company within six months - so, its owners are clearly keeping their options open).
My own views are: i) every business model is different but public equity will be made available for fintech / digital bank opportunities on a highly selective basis only; ii) the smaller players will struggle to list at an acceptable valuation multiple save for, perhaps, some of the high-growth niche highly differentiated players (e.g., Allica Bank) given liquidity considerations et al.; and iii) large players including the likes of Revolut, Monzo, and Starling Bank will, to the extent they do choose to pursue an IPO at some point, likely choose the US over the UK given the bias towards growth focus (rather than income focus) amongst investors in that market (as an aside, it was interesting to note that the San Francisco-based banking services business Chime Financial published its S-1 Registration Statement on Tuesday here ahead of a potential IPO on NASDAQ - and you can read about it on Bloomberg here). That being said, if their US market initiatives don’t work particularly well (and it is an extremely difficult market to break), a US listing might not be an attractive option. Stepping back, in a banking sector competition context, the concerns to the effect that these larger digital banking players could prove significantly disruptive have diminished in recent years - and now the only name in town (in a UK context at least) that incumbents seem properly worried about is Chase (JPM). We have been talking about IPOs for years in this domain - my prediction is that some might get there but most probably won’t.
UK specialist bank updates
Both Shawbrook Bank and Secure Trust Bank (STB) issued 1Q trading updates last week - Shawbrook’s update can be accessed here and STB’s here.
Starting with Shawbrook, we only get partial financial information in the 1Q and 3Q updates and the key points of note were: i) net loans +15% y/y to £15.8bn (+£0.6bn q/q) with positive conditions called out in a structured lending, vehicle finance, specialist BTL, and specialist residential mortgage business context (so, across both its commercial and retail lending businesses); ii) deposits +£0.8bn in 1Q to £16.6bn, which overshadowed the £0.4bn of TFSME repayments (TFSME balances outstanding sat at just £0.4bn at end-1Q); iii) continued credit quality resilience with a cost of risk (CoR) print of just 34bps, which compares favourably to the FY24 47bps CoR print; and iv) strong CET1 capital ratio of 12.9% and total capital ratio of 15.6%. The movement in the capital ratios indicates 1Q25 organic capital build in the c.£35-40m region at least, which is slightly ahead of the 1Q24 outturn of c.£30m at least (albeit these estimates are hinged on a number of assumptions, e.g., RWA inflation). All in all, Shawbrook has been churning out consistently strong financial performance. While there are some pressure points in a NIM context owing to funding costs, its consistent double-digit RoTE delivery is reassuring.
On STB, again, information is thin but here are the following key notable points: i) net loans +10.5% y/y to £3.73bn (+3.2% q/q) with growth in both business finance lending (+4.9% q/q) and consumer finance lending (+1.8% q/q); ii) deposits +15.4% y/y to £3.37bn (+3.9% q/q), overshadowing TFSME repayments of £98m in the quarter (notably, a further £30m of TFSME has been repaid since quarter-end, taking outstanding TFSME balances to just £102m); iii) STB completed a disposal of £25.8m of defaulted Vehicle Finance loan balances that had built up through FY24 following the secondary impacts of the FCA’s Borrowers in Financial Difficulty review and notes that this transaction is just the first of several initiatives to reduce the bank’s exposure to early-stage arrears and defaults; and iv) STB completed the implementation of its new operating model and is on track to deliver the £8m of annualised cost savings it has committed to achieving by the end of FY25. The statement strikes an upbeat tone with the CEO David McCreadie remarking that “We are looking ahead with confidence”. STB continues to be an anomaly in the land of UK bank valuations - trading at 0.34x end-FY24 tangible book value and just over 4x FY24 u/l earnings.
Is Santander UK for sale or not? - looking closely at its published returns
The ongoing speculation around whether Santander UK will be acquired continues to be a topic of focus in City boardrooms and eateries. While there have been no further developments of a public nature, I thought it worth reflecting on how management elects to present the returns profile of the UK business.
Santander UK Group Holdings plc (SAN UK) reported a Return on Tangible Equity (RoTE) of 8.8% in FY24. However, consistent with previous disclosures, SAN UK does not strip out the AT1 coupons from the numerator (i.e., the £950m reported PAT used in the RoTE calculation would drop to c.£811m if the AT1 coupons were deducted, which is the standard calculation methodology) - and the reported returns would drop to just 7.5% if these AT1 coupons were deducted. While the company is permitted to use whatever non-IFRS disclosures it wishes to, the justification seems to be that the immediate parent company subscribed for the AT1s so the returns to the equity-holder should therefore include (rather than deduct) the AT1 coupons. But this treatment (i.e., the inconsistency between the numerator and the denominator (for clarity, the average AT1 balance is stripped out of the tangible equity computation)) effectively makes the calculation redundant in my view at least as it amounts to an apples versus oranges comparison. Now, if we normalise the CET1 capital ratio (assuming that if the business is sold then the parent will strip out excess capital above a 13% CET1 ratio) then you’re getting to a RoTE of c.8.5%. And if we strip out the £295m motor finance provisions to get back to underlying (and assuming these provisions are not tax-deductible due to their general nature), then we get to a 11.6% RoTE.
Rerunning the math for 1Q25: i) the reported RoTE falls from 12.4% to 11.1% if we strip out the AT1 coupons from PAT; and ii) normalising the CET1 ratio once again (same basis as above) brings RoTE back up to 12.6% (note: not quite low-teens). However, it is interesting to note that SAN UK introduced a “Phasing Adjustment” in 1Q which bumped up its annualised 1Q25 PAT assessment by almost 22%. This reflects charges relating to the changes in its branch network and the BoE levy. To be clear, while SAN UK did not incorporate a similar such “Phasing Adjustment” in 1Q24, a significant “Phasing Adjustment” did appear in the 9M24 accounts (and a very small “Phasing Adjustment” was included in the 9M23 accounts) though there was no disclosure of what this related to. Now, there is nothing wrong with this to be clear - the company is at liberty to disclose RoTE on whatever basis it sees fit and stripping out one-offs (or adjusting for lumpy costs, etc., in an annualised RoTE assessment makes sense) - but it’s just important to bear it in mind in any assessment of what price Santander UK might fetch on a disposal (which is not my purview to be clear). Stripping out the “Phasing Adjustment” in its entirety in 1Q25 would mean an annualised RoTE of just 10.4% for 1Q (and that’s assuming a ‘normalised’ CET1 position). To be fair, SAN UK has its sights on cost efficiencies in FY25 and the annual levy hit in 1Q but, in order to compare RoTE delivery in 1Q25 versus peer banks then the 10.4% is the relevant number in my view. Still though, for what it’s worth, management seems determined to get some credit for future upside (cost reduction, income augmentation to an extent) and I reiterate my comment that anything below 1.15x tangible book will be unlikely to ‘cut the mustard’ (though complex transactions involving overseas asset swaps with select prospective UK bank acquirers could mean a lower implied price becomes acceptable) though that comment constitutes ‘high-level speculation’ on my part rather than a granular assessment of medium-terms return capability and how much of the future upside (if any) a potential acquirer is prepared to pay for today.
As a final note, the decision to incorporate a significant “Phasing Adjustment” in 3Q24 - and again in 1Q25 - will suggest to the cynic that the line that Santander UK is not for sale should be taken with a strong pinch of salt. Obviously these types of adjustments are closely scrutinised by investment bankers but some are likely to be speculating that it’s a very intentional move to flatter the RoTE from a public discourse perspective. That being said, 1Q saw one-off costs and it seems a justifiable adjustment on that basis.
Irish deposit market competition - demand accounts hold the key
Bloomberg reported here on Tuesday that Goldman Sachs’ retail bank Marcus has engaged in discussions with the Central Bank of Ireland (CBI) in recent months in relation to a prospective launch in the Irish market. It was also reported that Ireland is just one of a number of locations under consideration - with Germany a potential alternative or additional location. No decision has been taken yet and a representative for Goldman Sachs noted to the news agency that “We remain focused on that business in the US and UK and are exploring our options for future growth areas”.
The CBI reported on 30th April that total household deposits outstanding stood at €162.3bn at end-March, with <€16.5bn of these deposits sitting in term accounts. This dynamic - wherein 90% of household deposits sit in current accounts or overnight / redeemable at notice accounts - is the chief reason underpinning record Irish bank profitability (as an aside it’s a broadly similar deposit mix on the business side). There is a clear reluctance amongst Irish consumers to park deposits in term accounts - part of the reason for this is likely because the higher-paying term accounts are 2Y term products (which is quite a lengthy term to give up liquidity access for) and part of the reason is likely to be that the savings aren’t huge for the average customer (especially when Deposit Interest Retention Tax impacts are considered). Another reason is likely simple inertia given the paperwork involved. But, for me, the main reason seems to be because Irish customers want to preserve immediate access to liquidity. Marcus is focused on the provision of savings accounts (demand accounts and term accounts) to its UK customer base - and, as I have written before in a Bankinter context, were another player to offer attractive demand account rates this could potentially drive a significant uplift in churn. While bank executives will likely play this down (and you can already see the local analysts who are employed by the Irish banks talking about customer inertia as if there’s nothing to see here) the reality is that the executives are, most likely, privately quite worried and know that it might not take much innovation (e.g., attractive easy access / demand product) for a new entrant to cause a stir (Marcus surely wouldn’t face the same customer trust issues as Revolut does). That’s presumably what Marcus is thinking too. However, even though it’s Goldman Sachs, there may well be challenges as well as an elongated licencing approval process - let’s face it, none of ‘the vested interests’ likely want to see Marcus come into Ireland despite the benefits for the consumer. And the Irish market is limited in size terms so Marcus may be more tempted to just launch in Germany - especially if the licencing process is more straightforward there. Time will tell - and perhaps this will be Bankinter’s strategy anyway. At the end of the day the Irish bank executives are undoubtedly acutely conscious that the secret sauce for the super-high returns that they are generating is the ultra low-cost deposits (the value of an Irish deposit-taking licence is truly enormous!) and news like this is likely to be somewhat unnerving.
Other Notable Newsflow
Other UK Highlights:
Bloomberg reported on Friday here that HSBC (HSBA) is reorganising its capital markets and corporate advisory businesses into a new singular business unit (the Capital Markets and Advisory group) in a bid to capture more market share in the provision of private credit.
Jamie Dimon, CEO of JPM, did a rare interview with the press at the weekend - with The Sunday Times his publication of choice - read it here. A key emphasis of the interview was Dimon’s focus on growth for the JPM business (including in the UK) and his praise for the Labour government’s pro-growth agenda. Not much by way of new information in a Chase UK context (the only mention was that JPM has created 1,600 UK jobs on the back of the initiative).
Metro Bank (MTRO) issued a RNS on Friday last noting that The Spruce House Partnership (which has been a historical investor in MTRO equity going back for many years) has resurfaced on the share register with a shareholding of 10.1% following a transaction on 15th May.
Treasury’s shareholding in NatWest Group (NWG) has reduced to just 0.90% following a transaction on Wednesday 14th May. It is now just a matter of weeks before Treasury exits the share register. Separately, a NWG RNS noted that Group COO Jen Tippin disposed of 100,000 shares in NWG at a price of 488p per share on Tuesday 13th May, netting her total proceeds of almost £500k.
OSB Group (OSB) issued a RNS on Monday last noting that CEO Andy Golding disposed of 251,584 shares in OSB via a nominee account on 9th May, netting him total proceeds of more than £1.2m. OSB also issued a RNS on Friday last noting that Man Group’s shareholding in the bank reduced slightly from 5.68% to 5.65% following a transaction on 15th May.
Santander UK Group Holdings plc announced on Friday here that Tom Scholar has been appointed NED and Chair Designate. He has joined with immediate effect and will succeed William Vereker as Chair of both Santander UK Group Holdings plc and Santander UK plc on 1st August. Scholar’s civil service experience will undoubtedly be valuable to the business as it seeks to navigate an evolving regulatory landscape.
Standard Chartered (STAN) held an Investor Seminar on its Corporate & Investment Banking (CIB) business on Thursday last. The deck can be accessed here and the helpful session zoned in on how the turnaround strategy is now delivering returns-accretive growth - with STAN noting that this segment will deliver 5-7% income growth (excl. rates impact) as well as positive jaws.
Sky News reported on Thursday here that the Treasury is preparing to commence a formal search for a new CEO of the Prudential Regulatory Authority (PRA) given that Sam Woods’ second term is set to expire in June 2026. The search is expected to start at the end of the summer.
Rightmove’s latest update on UK mortgage rates from Saturday here shows that average 2Y and 5Y fixed rates reduced by 2ps and 1bp respectively last week (to 4.61% and 4.59% respectively) - while 2Y and 5Y swap rates were both +12bps last week. It is not surprising to some spread expansion emerge.
UK Finance published its quarterly Mortgage Arrears and Possessions Update for 1Q25 on Thursday here which shows that arrears continue to decline, which bodes well for bank asset quality. The number of homeowner mortgages in arrears of 2.5% or more fell by 2% q/q while the number of BTL mortgages in arrears of 2.5% or more fell by 6% q/q.
Other Irish Highlights:
The State’s shareholding in AIB Group (AIBG) fell to <3% (2.91% to be precise) following a transaction under the share trading plan on Monday 12th May. The State is roughly selling down one percentage point of outstanding shares per month with potential to speed this up a bit while the share price remains buoyant. I reflected on how the relationship between the Exchequer and the banks could slowly evolve following the State’s exit from its investments in AIBG in the Business Post this week here.
AIB Group (AIBG) issued a RNS on Monday last noting that MFS’ shareholding in the bank has now reached 9.36% (previously disclosed shareholding: 8.18%) following a transaction on 8th May. AIBG issued a further RNS on Wednesday noting that BlackRock’s shareholding in the bank has now reached 9.43% (previously disclosed shareholding: 8.48%) following a transaction on 9th May.
Bank of Ireland Group (BIRG) raised €750m from a fresh 7NC6 green bond issuance last week. Demand was very strong with orders in excess of €4.6bn and more than 220 investors participating, which ensured a keen coupon of just 3.625%. It brings the bank’s total green bond issuance to date to €5.6bn.
The Business Post reported last Tuesday here that Irish mortgage provider Nua has tapered its mortgage rates to become a bit more competitive. Nua is quite heavily focused on specialist residential lending to borrowers who struggle to obtain finance from the mainstream banks. This is a model that has worked quite well for specialist lenders in the UK and if interested in reading more on the company, I suggest this in-depth interview with its Co-Founder & Chief Commercial Officer Fergal O’Leary that was published in The Irish Times on 18th April.
The Central Bank of Ireland (CBI) published Retail Interest Rates statistics for March 2025 on Wednesday last here. These show a small reduction (-2bps m/m) in mortgage pricing, with the average rate on new lending for house purchases of 3.77% being the 6th highest in the eurozone (EZ average: 3.33%). There was an increase of 32bps on new NFC lending (but the data can bounce around a bit and pricing is -54bps y/y) while there was a reduction in pricing across all deposit categories with the exception of household overnight deposits (which were unchanged m/m).
Banking & Payments Federation Ireland (BPFI) published its Personal Loans Report 2024 on Friday - press release here and report here. The information is somewhat dated but it is excellent granularity for anyone looking to delve into personal lending market dynamics. The value of loans grew by 21.6% y/y to €2.5bn (+32.8% y/y in 4Q to €588m), which chimes with the messages conveyed by the listed banks in their FY24 updates.
The Federation of International Banks in Ireland (FIBI) published a report last Tuesday which shows that the international banking sector in Ireland is set to expand in 2025 with >60% of firms expected to increase business activity - press release here and report here.
Other Global Highlights:
It was widely reported on Thursday that US regulators are expected to present reform proposals by the Summer which will see a reduction in the SLR (Supplementary Leverage Ratio) requirement. It is not clear as to whether this will be effected via an outright reduction in the minimum SLR requirement (potentially aligning with other jurisdictions) or whether it will be achieved through excluding low-risk assets (Treasuries, central bank deposits) from the calculation. The potential latter move particularly is quite controversial. While it is likely to be supportive for increased investment into zero risk-weighted US Treasuries - thereby reducing government borrowing costs and improving credit provision into the real economy - the issue is that it could increase the risk profile of bank balance sheets as well as increase sovereign-bank interdependence. It will also likely serve to maintain the pressure on UK and European regulators to soften bank regulations more broadly. Good FT piece here on the matter.
The ECB set out some detail in relation to the reforms of its Supervisory Review and Evaluation Process (SREP) here on Wednesday last. Joint supervisory teams (JSTs) will, from July, focus their follow-up activity on the most severe open findings in a bid to “shift the focus towards the risks and issues which merit the most attention, i.e. the most material shortcomings”. A separate ECB note on the internal capital adequacy assessment process (ICAAP) here also referred to “reducing unnecessary complexity” and Kilvar Kessler (ECB Supervisory Board Member) was ‘on message’ in his praise for moving towards risk-based supervision in this interview published on the ECB’s website. Bloomberg also reported here on Friday that a high-level ECB taskforce will propose capital neutral measures to simplify Europe’s banking rulebook by the end of 2025.
Luis de Guindos, Vice-President of the ECB, spoke on Thursday in Amsterdam on financial stability in the euro area and you can access the transcript here. In the context of the resilience of the financial sector, de Guindos raised his concerns in relation to the potential for non-banks’ low levels of liquidity to amplify price swings - arguing that “These persistent liquidity and leverage vulnerabilities in the non-bank financial intermediation (NBFI) sector require a comprehensive policy response” and going on to note that “The rising market footprint and interconnectedness of non-banks increases the risk that NBFI vulnerabilities amplify adverse market developments across the entire financial system”.
Paul Davies at Bloomberg penned a piece on Wednesday last here which discusses how “Europe’s year of banking deals risks becoming a big fat flop” given it is looking less likely that BBVA will succeed in its ambition to acquire Sabadell while the terms on the table in the context of the various Italian bank deals look insufficient to garner shareholder support. Steven Arons also wrote on this topic on Bloomberg on Monday last here.
W/C 19th May Calendar
Tue 20th May (09:00 BST): Metro Bank (MTRO) AGM
Wed 21st May (07:00) BST: Close Brothers Group (CBG) 3Q25 trading update (for the three months to 30th April)
Wed 21st May (13:00 BST): Mortgage Advice Bureau (MAB1) AGM
Thu 22nd May (07:00 BST): Investec (INVP) FY24 results (for the 12 months to 31st March)
Thu 22nd May (11:00 BST): Bank of Ireland Group (BIRG) AGM
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