Financials Unshackled Issue 47: 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
Welcome to Financials Unshackled Issue 47, which covers key UK & Irish and select Global banking developments over the last week and is structured as follows:
Key Developments Review (ringfencing loosening?, Close Brothers, Irish banking competition)
Other Notable Newsflow (split between UK, Ireland, and Global)
W/C 26th May Calendar (UK & Ireland focus)
I hope readers in the UK and US have been enjoying the last of the bank holiday weekend (hence, the later timing of this note).
If you prefer an audio version of this article click ‘READ IN APP’ above and then press the PLAY button.
Key Developments Review
Alterations to ringfencing regime potentially on the horizon
I have written a lot on ringfencing in recent weeks. The latest development to surface on this front came in a Sky News report on the morning of Monday 19th May here - which noted that, during the prior week, the Chancellor sent a letter to the CEOs of HSBC (HSBA), Lloyds Banking Group (LLOY), NatWest Group (NWG) and Santander UK, observing that reforms to the ringfencing regime “have not gone far enough” and reiterating that she is “…open-minded about the case for further reform”. This message is consistent with the tone I picked up in various discussions on my recent London visit during the week in which the letter in question was reportedly sent.
Indeed, it now appears that the most likely outcome is significant reform rather than complete abolition. I remain of the view that an abolition of the rules is appropriate given the BoE now has its own separate Resolvability Assessment Framework. I have written before about the substantive regulatory burden and significant associated costs for the sector owing to these rules. It is also notable that the £35bn primary deposit threshold for ringfenced banks allows the likes of Chase UK (JPM) and Marcus (Goldman Sachs) to scoop up a meaningful quantum of deposits to fund lending activities elsewhere, whereas the UK banks (who lend significant volume domestically) that are subject to the regime are required to be fully compliant (given that their relevant deposits amount to more than the threshold). However, it must be said that no change comes without risk. The threshold (originally set at £25bn) has been seen as a ‘brake on growth’ for the likes of Marcus (it’s less clear in the case of Chase UK but it is likely to be a feature of the strategic thought process in a UK bank build timing context for JPM) meaning that a complete abolition of the rules could see these - and indeed other - overseas banks compete aggressively for deposits in the UK market (though, that being said, the market is very competitive already). Secondly, as John Vickers (the former BoE Chief Economist who led the work on the ringfencing rule proposals in 2011) has argued - as reported by Bloomberg here - the relaxation of the ringfencing rules “…would increase banks’ ability to switch lending away from UK businesses and households towards global investment banking activities. But the government wants more, not less, investment in the UK.”. That is a risk in theory but it seems unlikely to me that we would see material diversion of capital for lending to other jurisdictions in the medium-term in my view (with BARC, LLOY, and NWG strongly committed to UK loan growth) - and the politicians who are orchestrating the changes here might not have a particularly long-term view anyway (and subsequent legislative amendments can be made ‘down the road’ if necessary), so, I suspect there just isn’t enough force in this argument to give the Chancellor much pause for thought. Moreover, there has been lots and lots of talk about regulatory loosening but, aside from the recent changes to the mortgage rules, we haven’t seen much beyond ‘tweaking at the edges’ as I see it. Doing something bold / groundbreaking on ringfencing (and MREL) - for better or for worse - is likely to be part of the Labour playbook if they are effective politicians.
For more reading on this topic I suggest a good FT article from Monday 19th May here, a well-written article in The Times from Monday 19th May here, and Paul Davies’ opinion piece on Bloomberg from this morning here.
Close Brothers investors take fright
Close Brothers Group (CBG) published its 3Q25 trading update for the three months to 30th April on Wednesday last here. The stock price is almost 10% off its level as at close of trading on Tuesday last. Let’s delve into the key aspects of the update to understand why.
Zoning in on the key features of the update:
CBG notes that Banking division net loans shrunk by 0.9% q/q (-3.5% YTD) to £9.7bn owing to increased levels of repayments in Property, reduced activity in some of its Asset Finance businesses and a competitive market environment in Premium Finance - offset in part by growth in Invoice Finance and a recovery in new business volumes in Motor Finance to levels seen prior to the temporary pause in lending in October 2024. CBG has therefore downgraded its end-FY25 net loan book guidance to be ‘broadly flat h/h’ (i.e., c.£9.8bn) from ‘broadly flat y/y’ (i.e., c.£10.1bn).
Annualised YTD Banking division net interest margin (NIM) of 7.1% versus 7.3% for 1H25. This is quite a significant downdrift in a short period of time and implies a 3Q25 Banking NIM in the c.6.7-6.8% territory (well off the 1H25 exit NIM of 7.1%) despite lower-than-expected AIEAs (though we cannot be definitive on the latter given asset mix shift dynamics). Management has retained FY25 NIM guidance of “around 7%” but that guidance can be interpreted quite widely and the absence of a decimal point in the guidance means that analyst downgrades are likely. Indeed, funding costs are a ‘hot topic’ in the UK specialist bank community right now and it seems likely that this is the predominant reason underpinning NIM pressures at CBG (particularly taking account of the fact that CBG reported “further growth in our retail customer deposits” in 3Q25).
Group (central functions) net expenses of £13.9m in 3Q25 took the YTD net expenses to £42.3m - and no changes to FY25 guidance of £55-60m were effected - company-compiled consensus as at 20th May is for £59m and while this is unlikely to move in and of itself in response to the updated data, if analysts are pushing through downgrades to net loan balances and NIM (which they undoubtedly have done / will do), some may be tempted to nudge up their estimate on this line item as well in a bid to be conservative across the spectrum given ‘net downward momentum’ (arguably) in a guidance context more broadly (as a reminder - and by way of an example - there was a NIM downgrade at the stage of the 1H25 results in March) especially as one considers CBG’s remark (which is in no way surprising) that “we continue to incur an elevated level of professional fees and expenses associated with the impact on the group of the Financial Conduct Authority’s (“FCA’s”) review of motor finance commission arrangements and the Supreme Court appeals”.
CBG reiterated that it is on track to deliver annualised cost savings of c.£25m by end-FY25, saw a reduction in its annualised YTD bad debt ratio to 0.9% (1.0% for 1H25), and noted that Winterflood delivered operating profits of £0.4m in 3Q25 (from an operating loss of £0.8m in 1H25) - however, these reassuring / positive pieces of information were overshadowed by the revised net loan balances guidance and NIM trends.
It was positive to learn that the end-3Q25 CET1 Capital and Total Capital ratios came in at 14.0% and 18.0% respectively. It was also reassuring to read that CBG now expects its end-FY25 CET1 capital ratio to be above the medium-term target range of 12-13% - which is a guidance upgrade relative to prior guidance for the CET1 capital ratio to be at the top end of the target range. However, this was not enough to counteract the selling pressures stemming from the revised net loan balances guidance and NIM trends.
All in all, management has to be commended for what it has achieved in terms of capital-strengthening actions progression since the FCA announced its review into whether motor finance customers have been overcharged because of the past use of DCAs on 11th January 2024 - which has ‘steadied the ship’ as much as possible. The external environment is tough - particularly in a retail funding costs context. The coming months will hopefully bring some much-needed clarity from the Supreme Court and the FCA in terms of the full extent of exposures that CBG will face arising from the motor finance debacle. It seems that something could happen at some stage in the aftermath of this clarity. What CBG needs most in its current form is a current account franchise - and it’s the same for many of the other specialist banks. Alternatively, could CBG find a home with one of the other specialist lenders who would generate more scale in select specialist lending markets (as well as AIRB synergies potentially) at a price that works for both its own shareholders and CBG’s shareholders? Time will tell.
Competition in Irish banking
Pondering UK ringfencing rules (see above) and reflecting on the possible entry of Marcus (Goldman Sachs) into the Irish market got me thinking a bit more on competition in Irish banking. Please forgive the length of this piece and scroll on if it’s not of interest - once I got writing I had a lot to say!
Ireland saw an exodus of foreign lenders in the aftermath of the Global Financial Crisis (GFC). Ulster Bank (NWG) stuck around but finally decided to throw in the towel a few years ago (before eurozone interest rates started to rise, which meant that its exit came at an opportune time for the small pool of natural buyers who picked up its assets). This was an absolute no-brainer for NatWest Group (NWG) management - in view of its commitment to rightsize its capital base - given that approximately two percentage points of group CET1 capital was effectively trapped in its Irish subsidiary. KBC Bank Ireland came and went - with its exit also coming at an opportune time for the relevant incumbents. So, you’re now left with just three active Irish banks - AIB Group (AIBG), Bank of Ireland Group (BIRG), and PTSB. Some would say two-and-a-half given that PTSB is operating with a hand tied behind its back given its ultra-high risk weights (relative to the others) and its still much more limited scale (despite management doing all that it could to restore the financial health of the institution and transform it in size terms by acquiring assets from Ulster Bank). You’ve a few non-banks and credit unions but the lion’s share of deposits (c.98%) are held by the three banks and they dominate the market for mortgage lending (>90% share of flow). Still - there is competition between them. Three - or even two-and-a-half - can be a functioning market.
An important question from a policy perspective is what kind of a banking system do we aspire to have? I’ll look at this topic in some detail soon. But, suffice to say, it appears that while regulators seem to have considered this at length from a regulatory perspective, the same cannot be said from a policy standpoint. As an aside, I do acknowledge that the Department of Finance published its lengthy and important 248-page Retail Banking Review contribution in November 2022 here. However, my view is that this was a strong review of a number of disparate relevant topics rather than a hard-hitting integrated and unified look at the system that is desired as a whole on a longer-term ‘big picture’ forward-looking view. Cynically, some would say that the main reason for the review was a ruse to provide cover for government in the context of an impending removal of the banker pay caps (despite the fact that the topic of banker remuneration was relegated by the authors to just a sub-section of the penultimate chapter).
Anyway, as I noted earlier, the regulator seems to have a clear view of what it wants. One of those seems to be very strong capitalisation. This is primarily achieved through continued inordinately high risk weights - on residential mortgages particularly (the largest component by far of Irish banks’ loan books) - relative to other European jurisdiction. However, I am not saying that this is necessarily ‘by design’ rather than ‘by default’. Indeed, despite the fact that ‘a push’ in the later years of the last decade came to nothing, BIRG’s results slide decks helpfully continues to highlight the disparity between average Irish bank residential mortgage risk weights (which would be materially higher were it not for various NPE divestments and SRT transactions over the years) and the average risk weight on residential mortgage portfolios for other European banks. Here is an extract from Slide 54 of the FY24 results deck by way of illustration:
No danger of the leverage ratio becoming a binding constraint any time soon then! Indeed, there is ample justification for the elevated probability of default (PD) and loss given default (LGD) assumptions that underpin the relatively high risk weights given historical default experience. But that’s significantly based on ancient history at this stage. Banking & Payments Federation Ireland (BPFI) completed a stellar piece of work on this in early 2021 (click here for a summary article - which contains links to both the full report and a summary report) which concluded that “Models on future loan growth on the sector (excluding the impact of COVID), show that average RWA density may only fall slowly over the next 5 years. If “Downside” LGD is locked into RWA calculations from the previous crisis, even as better quality mortgages replace older higher risk ones , Irish mortgages will continue to attract much higher RWA Density than other European countries due to historical experience.”. The findings were sound - RWA density on residential mortgages has barely budged since the publication of the BPFI report (for example, the chart shown above by BIRG in its FY24 slide deck was also provided in its FY20 slide deck, at which stage the average risk weight on Irish residential mortgage portfolios was 29.7%, just one percentage point above where it stood at four years later) despite the fact that: i) the proportion of residential mortgage NPEs has fallen further; and ii) there have been further SRT trades - with the onerous default assumptions “effectively trapping the crisis in the RWA calculation for mortgages in Ireland” to borrow the BPFI’s language.
With the exception of PTSB, which suffers from risk weights that are significantly higher than those applied to AIBG and BIRG (and who expects to submit a recalibrated IRB model to the regulator in 2Q25 for review), the Irish bank executives may have just decided to accept their fate given that the regulator seems determined to ensure Irish banks remain exceptionally strongly capitalised to avoid a repeat of the past crisis which led to substantial bailouts across the industry. The ‘mood music’ in relation to other measures like the CCyB and P2R, etc., has been more positive over the last couple of years. And the executives know that the regulator has a whole host of levers to achieve the ultimate outcome that it desires (though I am categorically NOT saying that this is how regulatory policy is actually calibrated and I have no first hand experience of same) - so, if it’s not credit risk weights then it could be higher capital surcharges, add-ons, scalars, floors, etc., or, indeed, higher operational risk weights, etc. And the regulator hasn’t interfered in a pricing context unlike in some other markets. That’s all very well - and, in the absence of a truly open cross-border retail banking market in Europe (which still seems years away), then the banks essentially operate on what is largely a level playing field with the exception of the PTSB anomaly. Indeed, ‘new entrants’ like Bankinter et al. also have to operate within the same regulatory backdrop - and without detailed Irish market-specific loan loss history / data, it seems any such ‘new entrants’ will be applying the - even higher - standardised risk weights for some time to come.
However, what then when a bank like Marcus wants to break in - potentially in a bid to just hoover up cheap deposits like it did in the UK with limited (if any) appetite to lend in the Irish market it would seem? While it’s not clear that Marcus will pursue an Irish deposit-taking licence (it has been reported that Ireland is just one of a number of locations under consideration - with Germany a potential alternative or additional location), it is possible. Ireland doesn’t have ringfencing rules. So, to the extent that Marcus was successful in its quest to attain a deposit-taking licence in Ireland (a big IF in my view despite the fact that it’s Goldman Sachs-owned), it could theoretically come in and massively disrupt the Irish market for deposit-taking and then use all those deposits to fund lending activity elsewhere. The Irish banks essentially need deposits to be cheaper here relative to other jurisdictions due to the onerously high risk weights. OK, they certainly don’t need to be anywhere close to as cheap as they are today but you get the picture. And if Irish deposit costs were to rise to European average levels (say, stimulated by a new entrant like Marcus theoretically) then the Irish banks will lag their European peers once again from a shareholder returns perspective. Because you effectively have cross-subsidisation at play on Irish bank balance sheets (tight loan spreads owing to wide liability margins though there is some politics at play in this vein too as ‘the invisible hand’ looms large). And that’s why the regulator and government officials don’t cause any fuss (save for what they need to say politically) when it comes to wafer-thin deposit prices.
So, how can the Central Bank of Ireland reasonably grant a deposit-taking licence to the likes of a Marcus without simultaneously introducing ringfencing rules (or another broader rule that would limit a foreign opportunistic bank’s (that may or may not own an investment bank) ability to disruptively build up a large quantum of Irish deposits) - with a low primary deposit threshold for ringfenced banks given the size of the Irish household deposit market of just c.€162bn. I don’t know what the Central Bank is going to do here but it can’t run this risk, right?
I appreciate that one could see my above argument as a direct contradiction to my argument for an abolition of UK ringfencing rules. However, that is not the case. The UK deposit-market is well-functioning and it’s highly competitive - just look at the rates that Chip, Atom Bank, and West Brom Building Society are offering on easy access product as a case in point. The issue is that Irish deposit rates are on the floor so it could be seen as an opportunistic market to enter solely for the accumulation of cheap deposits - and, if the Irish listed banks are to earn an adequate return for shareholders, Irish deposit rates need to be materially below deposit rates in other jurisdictions because of the inordinately high risk weights on loan assets. Basic ALM techniques, i.e., you cannot just look at asset and liability pricing separately through a singular lens.
And we can focus on the fact that Irish banking customers are inert all day as local commentators did in the wake of the news that Marcus engaged in discussions with the CBI in relation to a prospective launch in the Irish market - and as I have done on countless occasions in the past. Indeed, despite my “as if there’s nothing to see here” remark in Financials Unshackled Issue 46, the local commentators categorically make a valid point. But it just might not be the full picture. The market for demand or easy access overnight/short-term product could be the choice point of attack for a new player (indeed, it might well be where Bankinter itself seeks to build volume as I have previously speculated). There is no conclusive scientific study that explains Irish bank deposit customer behaviour to my knowledge and I would bet that the fact that you essentially have to lock up your product for a fixed term to get a decent rate is one key reason (outside of ‘the hassle factor’ given the administrative burden involved in moving) as to why customers don’t move. If attractive rates were offered by a reputable player on demand accounts (like in the UK, for example) then you might well see substantial flows as customers continue to benefit from immediate liquidity access.
Stepping back, it all really just serves to highlight the highly fragmented nature of the European banking market and how local interests inevitably - and necessarily at times - trump unified eurozone banking union initiatives. It also shows how anomalies (like the high risk weights in Ireland’s case) cause all sorts of second order effects - some perhaps intended and others unintended, perhaps.
Other Notable Newsflow
Other UK Highlights:
Sector News
S&P Global Market Intelligence reported on Wednesday last here on how consensus analyst estimates are modelling a y/y pick-up in loan loss provision charges at UK banks in FY25 largely on account of the potential impact of US tariffs.
The BoE’s Prudential Regulatory Authority (PRA) published a near-final Policy Statement (PS7/25) on Thursday last here on the SME and infrastructure lending adjustments to Pillar 2A as outlined in PS9/24. The regulator has decided to maintain its proposals to remove the SME support factor and the infrastructure support factor under Pillar 1. However, the PRA recognises concerns raised by respondents to CP16/22 on the potential impact on UK competitiveness and growth of even limited changes in capital requirements for SME and infrastructure lending and has decided to introduce the Pillar 2A lending adjustments to minimise any potential disruption to SME and infrastructure lending, and therefore growth, resulting from the removal of the support factors. This will ensure that the removal of the support factors under Pillar 1 do not cause an increase in overall capital requirements for SME and infrastructure exposures.
The BoE published a Consultation Paper (CP12/25) on the Pillar 2A review - Phase 1 on Thursday last here. From an initial review it appears that the changes are not likely to have a major effect on Pillar 2A requirements across the sector. It predominantly relates to enhancements to credit risk, operational risk, pension obligation risk, and market and counterparty credit risk measurement - for example, setting out clear expectations in relation to the use of scenario analyses. The paper does propose that the IRB approach to RWA benchmarking for Pillar 2A credit risk be removed given that the implementation of the Basel 3.1 standards will: i) improve the risk capture and sensitivity of the Standardised Approach to credit risk; and ii) introduce restrictions on the modelling of certain exposures under the IRB approach and will eliminate the data required to update some of the benchmarks.
Government published the response to its consultation on the regulation of Buy-Now, Pay-Later (BNPL) last week here along with the draft legislative Order to bring the new rules into force here - which will see BNPL players fully regulated by the FCA. Useful summary article in the FT here and a well-written FT Lex piece here which picks up on the fact that the space has never seen its underwriting standards seriously tested. For some more in-depth detail please consult this excellent article in Compliance Corylated, which also picks up on the reforms to the Consumer Credit Act 1974 (CCA).
The BoE’s Prudential Regulatory Authority (PRA) has clarified its expectations around business conducted within branches of international banks operating in the UK, as well as its booking model expectations and liquidity reporting for such branches. The regulator has increased the existing £100m and £500m thresholds around FSCS-covered deposits by 30%, reflecting inflationary developments. However, the PRA has introduced a new indicative threshold of £300m of total retail and small business instant access deposits. Furthermore, the PRA noted that international banks are generally expected to operate in the UK as subsidiaries rather than branches. Read the BoE News release here and click here for access to the detail in the form of Policy Statement PS6/25. FT article on this here.
Company News
Investec (INVP) reported FY24 results for the year ending 31st March 2025 on Wednesday last here. Pre-provision adjusted operating profit was +7.8% y/y to >£1bn for the first time in the bank’s history and RoTE came in at 16.2% (and management is guiding a RoTE around the upper end of the medium-term target range of 13-17% over the next five years). On the UK & Other Specialist Banking specifically: i) pre-provision adjusted operating profit +3.1% y/y to £507.4m; ii) NII was -4.4% y/y as the benefit of a larger average loan book was offset by higher funding costs as deposits repriced higher; iii) non-interest revenues were +5.3% y/y due to higher fees in the corporate & investment banking business as well as improved investment income; iv) net core loans +1.4% y/y to £16.8bn, driven by growth in the UK residential mortgage lending portfolio, while the corporate lending segment remained flat (moderate growth across various corporate lending portfolios was offset by higher levels of repayments); v) cost of risk of 60bps was broadly in line with the prior year (58bps) with overall asset quality of the book remaining stable; and vi) the Group has concluded that the £30m provision that has already been raised for the motor finance commissions review still remains appropriate but notes that the financial impact could “materially vary” from this level.
Lloyds Banking Group (LLOY) issued a RNS noting that CEO Mass Affluent Joanna Harris disposed of 400,000 shares at a price of 78.62p per share on 23rd May 2025 - for gross proceeds of just over £300k.
Metro Bank (MTRO) published the result of its AGM on Tuesday last here. All resolutions were passed but this is unsurprising given that one large shareholder controls 53% of the equity. That being said, looking more closely at the vote to approve the Shareholder Value Alignment Plan (SVAP), we see that it received 88.6% support with 83.15% of the issued share capital voted on that particular resolution. This means that almost 70% of non-controlling voting shareholders voted in favour of this particular resolution despite the warnings issued by Glass Lewis and ISS. As I noted in Financials Unshackled Issue 45, share price targets are a well-established incentive tool that generate alignment of interest and the upper end of the prospective management payouts are contingent on the share price almost quadrupling from current levels, which would be an extremely satisfactory outcome for shareholders - in what is an idiosyncratic turnaround situation. Separately, MTRO issued a RNS last week noting that Pershing Square’s shareholding in the bank fell to <5% (previously disclosed shareholding: 5.15%) following a transaction on 16th May.
Nationwide Building Society issued a RNS on Friday here updating its post-offer intention statements with regards to the cash acquisition of Virgin Money UK. The RNS notes that, following its initial period of ownership Nationwide has decided that it intends to align the membership of the Virgin Money and Clydesdale Bank boards with that of Nationwide to streamline decision making and governance. Nationwide expects this to take effect from 30th September, subject to regulatory approval. This change, if effected, will likely be constructive in an executive decision consistency as well as a cost containment context.
NatWest Group (NWG) issued a RNS noting that Group Chief Information Officer Scott Marcar disposed of 8,011 shares at a price of 505p per share on 16th May 2025 - for gross proceeds of just over £40k.
Revolut has chosen Paris as the venue for its Western European HQ. Bloomberg reported here that it plans to invest >€1bn in the country and is in the process of submitting an application for a local banking licence to the ACPR. The French operation will, in due course, oversee Revolut’s businesses in Germany, Ireland, Italy and Spain as well as branches that are scheduled to open in the coming months in Europe, according to a report in The Irish Times here. The Lithuanian banking unit, which will continue to be led by Joe Heneghan, will continue to serve other markets in the eurozone.
The Guardian broke the news on Monday 19th May here that Santander UK has frozen salaries and cut jobs in its commercial banking business - and is planning changes to its bonus schemes which are likely to see staff receive lower payouts. As the article notes, this could indeed make the UK business more attractive to prospective buyers who are likely to be mainly (or solely) interested in its retail banking business. I set out some detailed Santander UK RoTE deconstruction work in Financials Unshackled Issue 46 here last week which may be of interest if you are following the ‘situation’.
Other Irish Highlights:
Banking & Payments Federation Ireland (BPFI) published its SME Monitor for May 2025 this morning - press release here and report here. This is a macro-focused review of the SME market rather than a banking-focused report so I’ll let you digest the contents in your own time. Pages 17 and 18 of the report pick up on the findings of the recent Central Bank of Ireland (CBI) bank lending survey for 1Q25 which showed here that SME demand for credit was unchanged in the quarter.
The Irish Times reported this morning here that AIB Group (AIBG) is preparing a portfolio of c.€500m of gross non-performing loans for sale, which could come to the market in 3Q25. This is not hugely surprising news and would mark a further sensible initiative to further reduce the bank’s non-performing exposures - which represented c.2.8% of gross loans at end-1Q25 - given calendar provisioning considerations.
Bank of Ireland Group (BIRG) published a press release on Thursday last here noting that it is increasing its target for the funding of home building, with a new ambition to support the construction of 30,000 homes across Ireland through debt and equity finance. This follows extremely disappointing recent data from the Department of Housing and is a sensible well-timed statement on the part of the bank to show that it’s not the banking sector that’s causing the logjam from a housebuilding perspective (with the Glenveagh Properties CEO also remarking at the company’s AGM last week that it is not fair to criticise the banks for being cautious in deciding whether to lend to residential developers - picked up on in the Business Post here). In an interrelated vein it was widely reported in the media last week (including on Reuters here) that the consistent view expressed by senior bankers at the Banking & Payments Federation Ireland’s (BPFI) Annual Conference last week was that they would like to be lending more into the housebuilding sector. As an aside, it is absolutely comical that we are more than six months into the tenure of the new Government and everyone powerful is still in an absolute tailspin in relation to what to do to get housebuilding going - with political posturing between the two main parties as well as the decision early this year to ‘change the guard’ for what is rumoured to have been a fear of ‘power build’ seemingly partly responsible for the ‘hold-up’. One could say that, given lead time considerations, unless a miraculous rapid turnaround in dealing with this saga is effected (it can surely only be emergency legislation…), the incumbent political parties will pay for it at the ballot box at the stage of the next General Election - with potentially grave consequences for Ireland’s investability. Separately, BIRG issued a RNS last week noting that Orbis’ shareholding in the bank reduced to 2.97% (previously disclosed shareholding: 3.98%) following a transaction on Monday 19th May.
Fitch moved last Tuesday to upgrade PTSB’s Long-Term Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB-’ and Viability Rating to ‘bbb’ from ‘bbb-’ (see here). The agency noted that the upgrades reflect its expectation that the recent improvements in its asset quality will be sustained due to its conservative focus on low-risk residential mortgage lending (though I might add that its risk weights tell a different story!) and that, while its foray into SME lending marks a move up the risk curve, it comes from a low level in a resilient operating environment ensuring that the group maintains its low risk profile as a predominantly retail mortgage lender. PTSB’s management welcomed the upgrade with CFO Barry D’Arcy noting: “We welcome Fitch’s latest positive assessment of our risk profile. It reflects well on our business, our asset quality, our capital position and our profitability. PTSB is continuing to make really strong progress in bringing competition and choice to personal and business banking customers.”.
Other Global Highlights:
The Federal Reserve Bank of Boston published a paper on Wednesday last here posing the question as to whether the growth of private credit could pose a risk to financial system stability - which was also covered in the FT here and in The Wall Street Journal here. The paper zones in specifically on the role that banks have played as liquidity providers in financing the explosion in private credit, observing that banks’ extensive links to the private credit market could be a concern because those links indirectly expose banks to the traditionally higher risks associated with private credit loans. The authors conclude that bank loans to private credit funds are typically secured and among those funds’ most senior liabilities - indicating that banks would suffer losses only in severely adverse economic conditions. However, a note of caution is issued in relation to tail risks with the authors noting that “losses could also occur in a less adverse scenario if the default correlation among the loans in PC portfolios turned out to be higher than anticipated—that is, if a larger-than-expected number of PC borrowers defaulted at the same time”.
The ECB published its latest Financial Stability Review here last week. Key observations in a banking sector context (see Chapter 3) were: i) bank profitability remains solid but faces headwinds as revenue growth slows due to NII contraction; ii) asset quality deterioration has remained contained but credit risk and provisioning needs are likely to increase; iii) liquidity and capital buffers remain robust. Interestingly, the report notes that depositor preferences have evolved with a preference for more liquid assets owing to the lower official rate backdrop (the composition of deposits has been shifting towards demand accounts) - unsurprising but notable that the report also flags that the digitalisation of financial services and the increasing presence of online banks have impacted on depositor preferences.
Bloomberg reported on Thursday last here that Michael Theurer, Bundesbank Executive Board Member, has said that the EC should delay new global capital requirements for banks’ trading businesses (the fundamental review of the trading book), noting “It’s certainly sensible to wait until it’s clear what the US will do”. This was followed up later that day by an exclusive report on Reuters here noting that the EC is set to recommend a delay to the adoption of these rules until January 2027 - with Bloomberg also following up with a report on this here.
Useful reference material / easy reading here from Bloomberg on how stablecoins work and why regulators are wary. Several forward-looking major banks - including the likes of JPM and ANZ Bank - are actively developing or exploring their own stablecoins as part of a broader shift toward blockchain-based financial infrastructure.
W/C 26th May Calendar
Tue 29th May (07:00 BST): Nationwide Building Society FY24 Preliminary Results
Fri 30th May (09:00) BST: ECB Monetary developments in the euro area - Apr 2025
Fri 30th May (11:00 BST): Central Bank of Ireland Money & Banking Statistics - Apr 2025
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