Financials Unshackled Issue 53 | Week In Review (BoE Financial Stability Report and Much More)
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 53 | ‘Week In Review’ - your weekly pack for critique and curation of key banking developments over the last week. Feedback, as always, is most welcome.
To unshackle your understanding of the week's banking developments please read on to explore critiques, curated insights, your calendar for the week ahead, and to finish with some light entertainment!
🔎 The Critique 🔎
In this section I dissect the week’s most significant banking development(s) / theme(s) of interest across key regions as appropriate, cutting through the noise to get to the crux of the issue.
🇬🇧 UK Unfiltered 🇬🇧: BoE Financial Stability Review - Perspectives
What Happened?: The Bank of England (BoE) published its biannual Financial Stability Report (FSR) at 10:30 BST on Wednesday 9th July alongside the publication of the Record of the Financial Policy Committee (FPC) meeting held on Friday 27th June. A press conference was held afterwards.
Key Detail: The FSR contains the usual treasure trove of detail in relation to the condition of the banking sector, households and corporates as well as some key decisions / updates and the key points to flag are:
The FSR notes that the UK banking system is well capitalised, maintains robust liquidity and funding positions, and asset quality remains strong - and that the banking system has the capacity to support households and businesses even if economic, financial and business conditions were to be substantially worse than expected. The document also explores how UK banks have adjusted well to the normalisation of central bank balance sheets, increasing their use of BoE standing lending facilities (notably, ILTR drawings have grow to c.£25bn from an average of just c.£2bn in 3Q24 and are expected to increase further).
UK household financial conditions remain resilient and are expected to continue to remain so. Notably, the aggregate household debt to income ratio fell by around 4pps from 2Q24 to 4Q24, reaching 126% - its lowest level since 2001. The aggregate mortgage debt-servicing ratio (DSR) was flat at 7.1% in December 2024 and is projected to increase modestly to 8.0% by 4Q26 and 8.7% by 4Q27.
UK corporates remain resilient and are expected to remain “broadly resilient” - with some pockets of risk in a SME and a highly leveraged borrower context as well as potential challenges for certain sectors in the event that the eventual impact on the UK of the shocks to global trade were worse than expected. Notably, corporate net debt to earnings reduced to 122% in 4Q24 as net debt fell and profits picked up - this ratio is well below Covid (171%) and post-GFC (235%) highs.
Importantly, the FPC elected to maintain the UK countercyclical capital buffer (CCyB) rate at its neutral setting of 2% based on its assessment of the evolution of domestic economic and financial conditions, and underlying vulnerabilities. The FPC believes that this 2% rate should help ensure that banks continue to have capacity to absorb unexpected future shocks without restricting lending in a counterproductive way. As usual, the FPC notes that it “…will continue to monitor developments closely and stands ready to vary the UK CCyB rate, in either direction, in line with the evolution of economic and financial conditions, underlying vulnerabilities, and the overall risk environment”.
Interestingly, the Record of the FPC Meeting notes that “Considered over a longer time horizon, UK bank capital levels in aggregate have been broadly stable since the completion of the phase-in of the post-global financial crisis (GFC) bank capital framework in 2019. While the FPC judge the level of capital in the banking system to be broadly appropriate, it has been five years since the Committee’s last assessment of the overall level of capital requirements. Therefore, it will refresh that assessment and provide an update on this work in the next Financial Stability Report (FSR).”. Sarah Breeden, Deputy Governor of the BoE for Financial Stability, further remarked on this point at the press conference, noting that “One of the things that’s happened since we last did a review is that we had the experience of the COVID pandemic and how the bank capital regime operated in that period of actual stress…One of the things that we learned through that was that some of our buffers are more usable than others”.
The FPC recommended that the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) amend implementation of the 15% loan-to-income (LTI) mortgage flow limit to allow individual lenders to increase their share of lending at high LTIs while aiming to ensure the aggregate flow remained consistent with the limit of 15%. The Record of the FPC Meeting also notes that the Committee supports “…initiatives to explore increases in the supply of housing and greater access of creditworthy households to mortgages, including at higher-LTVs”.
Why it Matters:
The condition of the banking sector is critical to the proper functioning of the financial system - and the condition of the households and corporates to whom the banking sector gathers deposits from and lends to is critical in the context of the ongoing financial health of banks and economic functioning more broadly.
The CCyB is a direct determinant of banks’ capital requirements and, therefore, their target Total and Common Equity Tier 1 (CET1) capital ratios. The potential simplification of the buffers is potentially critical in terms of capital flexibility.
Relaxing the LTI mortgage flow limit (while ‘aiming’ to ensure the aggregate flow remains consistent with the limit of 15%) removes a key lending constraint (to the extent that banks apply to the PRA for permission to exceed the 15% cap) and is supportive in the context of boosting home ownership.
Unshackled Perspectives: No surprises in the findings relating to the financial condition of the banking sector, households and corporates but two key reflections are:
It will be interesting to see how the approach to capital buffers evolves - and what that could mean for bank capital flexibility. A push for simplification is growing internationally. Indeed, one might recall Bundesbank Executive Board Member Michael Theurer’s recent comments “If it was up to the Bundesbank, we could radically simplify the different capital buffers, ideally in a releasable and a non-releasable buffer” and, given these comments, together with Breeden’s remark to the effect that international regulators should have a debate over the best usage of banks’ capital buffers based on the experience of the COVID-19 pandemic, one wonders whether there is already some ‘behind-the-scenes international coordination’ underway in a capital buffers context. There are lots of permutations in relation to possible changes of the capital framework - for example: i) simplification of the buffer stack (reducing the number of distinct buffers / clarifying the interaction between different buffers / a push to make the rules more principle-based); and/or ii) refinement of Maximum Distributable Amount (MDA) rules. In practice, the markets see the CCyB as the only truly releasable buffer given its design specifies that it is intended to be released by authorities through a downturn. While I wouldn’t go so far as to suggest that simplification could drive lower minimum capital requirements (indeed, on a separate but related note, PRA CEO Sam Woods reportedly commented to reporters this week that the FPC has “no intention” of reopening discussions on Basel 3.1 implementation), to the extent that a larger portion of capital were too become held in clearly defined releasable buffers, there would be greater certainty of flexibility in a downturn - which would likely be welcomed by investors and stakeholders more broadly.
While there had been an expectation that change was afoot in the context of the LTI mortgage flow limit, the relaxation is a positive outcome for lending activity - and, in my view, reflects a continued regulatory loosening push that has been orchestrated by political figures.
Resources: BoE FSR here; Transcript of BoE Governor’s opening remarks at the FSR press conference here; FSR press conference video replay link here; Record of FPC Meeting here; Bloomberg article of 9th July on review of bank capital rules here; PRA announcement on the review of the LTI flow limit rule here and PS11/25 here; FCA publication on the amendments to the PRA Rulebook and FCA Guidance concerning the de minimis threshold for the LTI flow limit in mortgage lending here; The Times article of 12th July on the LTI limit changes here.
📌 The Curation 📌
In this section I collate select key banking developments across key regions, cutting through the noise to get to the nub of the issue in cases. It’s a lengthy section and, going forward, this will be much slimmer in size - those select developments on which I feel compelled to write some analysis on beyond a headline view will be promoted to ‘The Critique’ section above in future notes.
🇬🇧 UK Unfiltered - My Top Picks 🇬🇧
1️⃣ Further regulatory change looms:
All eyes on next week’s Mansion House Speech (on Tuesday 15th July) with Chancellor Rachel Reeves expected to launch a growth plan for the financial services sector, according to media reports (see FT article here from Friday, for example). Questions abound in the City as to whether this will be the Chancellor’s ‘Capital Markets Day’ as Seema Shah puts it in The Sunday Times this weekend. The FT reports that Reeves is set to announce a “single front door” for investors, i.e., a concierge-style service that will help companies obtain visas and advisory services - similar to what is offered in financial centres like Singapore (indeed, The Times reported on this back in January here). The newspaper further reported that the service, which will be based in the Office for Investment according to a government official, will be established as a public-private partnership between the FCA, the PRA, the City of London Corporation and government. Separately, The Sunday Times reported here that Reeves is also set to announce a relaxation of some of the requirements enshrined within the Senior Managers and Certification Regime (SMCR). Finally, Sky News reported here on Wednesday that, at a meeting held between financial services firms and the Chancellor on Wednesday morning, companies including Atom Bank, Clearbank, Revolut and Zilch pressed on the Chancellor to allow investors in newly listed companies to benefit from stamp duty holidays or reduced capital gains tax (CGT) rates (which also gives one a sense of who may have IPO ambitions in time - though there’s nothing particularly surprising here, of course).
One gets a sense that significant further regulatory loosening is forthcoming. Apart from what has been discussed above, two key items I am watching for are: i) what the government elects to do in respect of the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) thresholds (notably, UK Finance called back in January here for the thresholds to rise significantly to £40-50bn - which is still well below international norms); and ii) what changes the government may effect to the ringfencing regime (and a useful paper from KPMG last month exploring three possible outcomes, i.e., status quo, ‘Edinburgh plus’, or outright repeal can be found here).
Notably, there are also fears mounting that, despite this growth push, Reeves may be tempted to impose higher levies on the banking sector in the Autumn Budget.
On a final regulatory-related note the FCA, on Thursday, published its 2024/25 Annual Report here and its 2024/25 Secondary International Competitiveness and Growth Objective Report here.
2️⃣ Neobanks on the naughty step again:
Following the shocking revelations in relation to Starling Bank’s senior management failings that were articulated in this Final Notice issued by the FCA to the bank in relation to its £29m fine last year, it was Monzo’s turn to take the spotlight last week - with news on Tuesday that the FCA has fined Monzo £21m for failing “…to design, implement and maintain adequate customer onboarding, customer risk assessment and transaction monitoring systems to mitigate the risk of financial crime” and for repeatedly failing to comply with a FCA requirement preventing the bank from opening new accounts for high-risk customers. FCA press release here and Final Notice here. Good articles on the development from FT here, The Times here, and Compliance Corylated here.
My high-level perspectives (which were reported on by Compliance Corylated) are that the fine marks another embarrassing moment for the digital challenger banks. What caught my eye in particular was the FCA's scathing remark - that "the weaknesses in Monzo’s financial crime controls resulted from incorrect assumptions about the nature of many of its customers and products and about the effectiveness of Monzo’s transaction monitoring systems to mitigate the lack of customer data gathered at onboarding" - highlighting the alarming immaturity of its internal controls just a few short years ago. Indeed, this development is likely to further intensify stakeholder scepticism regarding the stewardship and trustworthiness of these burgeoning digital institutions. That being said, these banks are demonstrably tightening their controls, and some early stumbles are indeed par for the course for new entrants.
I wrote on Monzo’s results recently in some detail - moving beyond the headlines to unbundle what is truly underpinning profitability and you can read further on that in Financials Unshackled Issue 49 here.
3️⃣ Mortgage spreads contracted significantly last week; top 1Y bond rates rise:
Rightmove’s latest Weekly Mortgage Tracker (published on Saturday 12th July here) shows that there was a significant decline in mortgage spreads last week. The average 2Y and 5Y mortgage rates are shown in the table (extracted from the release) below, indicating that average 2Y mortgage spreads are now at 66bps (-6bps w/w) and average 5Y mortgage spreads now sit at just 54bps (-8bps w/w). Indeed, there were plenty of headlines during the week around further rate reductions (from the likes of Barclays UK (BARC), HSBC UK (HSBA), Nationwide Building Society and Santander UK) meaning spreads could compress further in the short-term. While it would be folly to overanalyse a few weeks of data, to the extent that spreads remain compressed over the coming weeks, it will be interesting to hear what the banks say in relation to completion spreads at the stage of the 1H25 updates in late July.
On a separate but interrelated (ALM / NIM context) note, Moneyfacts data published last week (see this) shows that the top 1Y fixed rate bond price jumped by 10bps m/m in June to 4.55% at the start of July (following a 20bps mm reduction in May to 4.45% at the start of June). The top 2Y rate was +1bp m/m to 4.45% at the start of July while the top 3Y, 4Y, and 5Y bond rates remained unchanged m/m.
4️⃣ CBG announces a refocusing of its Premium Finance business
Close Brothers Group announced here on Wednesday that it is focusing the growth of its Premium Finance business towards commercial lines insurance premium finance going forward - and will therefore reduce the emphasis on its personal lines insurance premium finance. The decision has been taken in a bid to reallocate capital to the sub-segment of Premium Finance which presents the strongest risk-adjusted returns capability and long-term growth prospects. CBG sees “significant opportunities” to expand its presence in the commercial lines market and notes that rising costs, broker consolidation, and increased operational complexity have impacted the long-term attractiveness of personal lines. Indeed, a competitive market environment in Premium Finance was called out as one of the reasons underpinning CBG’s FY25 net loan growth guidance downgrade in its recent 3Q25 trading update on 21st May - following CBG’s comment in its 1H25 report to the effect that it had seen “some softening of demand” and its reference to a “competitive market environment” within its FY24 Annual Report.
For context, CBG’s Premium Finance business helps make insurance payments more manageable for people and businesses, by allowing them to spread the cost over fixed instalments. It works with c.1,300 insurance brokers in the UK and Ireland. Average loan sizes are c.£0.6k and the typical loan maturity is 11 months, according to CBG’s 1H25 results slide deck. CBG reported £958m of Premium Finance-related net loans (just under 10% of group net loans) at end-1H25 on 31st January (which the RNS helpfully shows was split between commercial lines of £517m and personal lines of £441m). The group does not split out the profits within its Retail Banking business (which consists of Motor Finance and Premium Finance) that are attributable to Premium Finance specifically.
The RNS notes that CBG estimates run rate u/l cost reduction of c.£20m p.a. by FY30 with c.£15m of one-off costs required to deliver the savings. The group will withdraw from certain broker relationships over the next six to 12 months — and that these represent just a modest portion (c.10%) of its broker network. The portion of the business associated with these broker relationships contributed c.4% of the group’s operating income (1H25: £16m; FY24: £34m) and represented c.3% of loan balances (£330m) at 31st January 2025 (down from 4% or £365m at 31st July 2024).
As a result, CBG expects its Premium Finance loan book to decline by c.30% in the next three years. It also expects operating profit in this business to reduce over the same period, reflecting both the lower loan balances and the investment required to enhance the proposition and optimise the cost base - which, CBG expects, will be offset gradually by targeted growth in commercial lines and cost savings from a more efficient operating model. Premium Finance net interest margin (NIM) is expected to remain broadly stable though there is expected to be a marginal impact on the Banking division’s NIM due to loan book mix effects.
In my backward-looking view it wasn’t surprising to see: i) the stock price react negatively to the news (near-term pain for long-dated gain); and ii) some recovery as the market probably got its head around the development in a capital allocation strategy consistency context (as well as wider considerations) later in the week. Notably - and separately - an ongoing FCA Market Study in relation to Premium Finance is underway (initiated last October as flagged in Financials Unshackled Issue 21 here) - and some market participants may have also, initially, drawn links between the development and concerns in relation to the separate Market Study. Indeed, it has been speculated that there could be contagion risk for Premium Finance businesses accruing from the Hopcraft judgment last year. For further resources on the development, see this Bloomberg report.
5️⃣ Other Company Snippets:
Funding Circle Holdings (FCH) announced here on Monday the appointment of Richard Harvey as an INED and Chair of the Risk Committee with effect from 1st August. Harvey brings significant risk management experience as well as over 30 years of commercial experience in lending and credit cards, having held senior executive positions at HSBC (HSBA), GE Money and Barclays (BARC). He is a NED of both the Money and Pension Service and the Financial Services Compensation Scheme (FSCS).
Bloomberg reported here on Tuesday that HSBC UK (HSBA) is accelerating growth plans for its UK wealth management operations, embarking on a recruitment drive for bankers to service affluent, HNW, and super-rich individuals. This followed the publication of a press release on the bank’s website here, noting that it has this week officially opened the doors to the first ever UK Wealth Centre on St James’s St, London. Separately, HSBA issued a press release on Friday here, noting that it too has now left the Net Zero Banking Alliance (Bloomberg article here on this development).
Sky News reported here on Saturday that Lloyds Banking Group (LLOY) is in advanced discussions to acquire the digital wallet provider Curve for a price believed to be up to £120m - with a deal set to potentially be sealed by the end of September. There are a number of potential strategic benefits for LLOY in the context of the reported possible deal - acceleration of its digital payments strategy, a rival to Apple especially as the latter faces pressure to open up its Apple Pay systems to third-party developers, and customer data and insights capture. In separate tech capabilities-related LLOY newsflow, it was reported during the week that LLOY is expected to deliver data and AI training to tens of thousands of its employees through its two-month Data & AI Summer School initiative.
Metro Bank (MTRO) issued two press releases this week: i) it has expanded its BTL loan product range to include Houses in Multiple Occupation (HMO) and Multi-Unit Freehold Blocks (MUFB), according to a 10th July press release here (this is a sensible decision in the context of its objective to grow its specialist lending portfolio); and ii) it has opened its 76th store (in Chester City), according to a 7th July press release here (this is consistent with the commitment to open three new stores in 2025 articulated in its FY24 Annual Report - in Chester, Gateshead and Salford).
Revolut featured extensively in the media last week. The FT reported here on Monday on how the group is still awaiting FCA and PRA authorisation for a consumer credit licence to permit it to offer credit cards and other loan product in the UK, according to sources. Sky News reported here on Tuesday that Mubadala, the Abu-Dhabi based sovereign wealth fund (SWF) is in talks to acquire $100m of stock in Revolut. The FT further reported here on Wednesday that Revolut is in talks to raise new funds from multiple investors - led by Greenoaks but with Mubadala also said to be interested in participating in the finding round - at a valuation of $65bn (which is, reportedly, a ‘blended’ number balancing a higher valuation for new funding to be raised and a lower valuation for existing investors selling shares). Some perhaps less exciting Revolut-related newsflow last week was that: i) it has launched Stocks and Shares ISAs and UK-listed ETFs in the UK; and ii) it has struck a partnership with Ant International to enable cross-border remittances to China via Alipay.
6️⃣ Shareholding Changes of Note:
Secure Trust Bank (STB) announced on Monday 7th July that Kirapaka Capital (PCA to Chair Jim Brown) purchased 24,723 shares in STB on 3rd July at a price of 869.2p per share for a gross outlay of c.£215k (following purchases for a gross outlay of c.£30k on 2nd July).
Secure Trust Bank (STB) announced on Wednesday 9th July that Ian Corfield (CEO Designate) purchased 5,641 shares in STB on 8th July at a price of 881.6p per share and a further 5,646 shares in STB on 9th July at a price of 885.5p per share for a total gross outlay of c.£100k.
Secure Trust Bank (STB) announced on Thursday 10th July that Ennismore’s shareholding in the bank reduced to 5.96% (previously disclosed shareholding: 6.26%) following a transaction on 7th July.
Vanquis Banking Group (VANQ) announced on Wednesday 9th July that Schroders’ shareholding in the bank reduced to 17.87% (previously disclosed shareholding: 18.11%) following a transaction on 8th July.
🇮🇪 Ireland Unvarnished - My Top Picks 🇮🇪
1️⃣ CBI Retail Interest Rate Statistics for May 2025:
The Central Bank of Ireland (CBI) published its Retail Interest Rates update for May 2025 on Wednesday 9th July and an excerpt from the release, neatly summarising key movements, is shown below.
Mortgage rates continue to fall as expected (though, notably, front book mortgage rates are now just 8th highest in the eurozone - down from 5th highest in April, so I would expect some more material trimming in the coming months) but it was interesting to note the increase observed in new household term deposit rates, which were +2bps m/m - and 10bps ahead of the euro area average in fact. On the other hand, non-financial corporate (NFC) term deposit rates fell by 21bps m/m to 1.76%, 30bps below the euro area average. The household term rates received some attention in the media but two points are noteworthy: i) further deposit rate reductions (for example, in the case of both Bank of Ireland Group (BIRG) and PTSB) became effective in early June so these moves weren’t captured in the data; and ii) far more importantly, the stickiness of overnight deposits - which represent the lion’s share of Irish banks’ retail funding (remember that Irish banks pay negligible rates for demand accounts as well as benefiting from a very high share of current accounts in their deposit mix) - mean that front book household term deposit rates really aren’t enormously relevant to net interest margin (NIM) development.
2️⃣ CBI research finds that specialist property lenders are highly sensitive to a tightening in financial conditions:
The Central Bank of Ireland (CBI) published research here last week (Non-bank Lenders to SMEs: Sensitivity to Financial Conditions) based on credit registry data which shows that specialist property lenders react negatively to a tightening in financial conditions, contracting lending significantly in comparison to banks. On the other hand, the research finds that asset finance lenders and general non-bank lenders do not contract loan supply in response to a tightening in financial conditions - and instead increase credit supply. These findings are unsurprising for two reasons in my view:
Specialist property lenders in the Irish market suffer a sharp increase in funding costs in response to ‘tightening financial conditions’ (with the paper citing the increase in interest rates through 2022/23 as an example of such ‘tightening’) while the listed banks continue to preserve low funding costs given that the vast bulk of their funding is in the form of deposits, with the lion’s share of those deposits priced at zero or negligible rates even in a high rate backdrop. This allows the banks to wear mortgage spread compression (staves off political heat, limits NPEs) as the liability margin gains that they benefit from in a higher rate backdrop are enormous - and, even then, mortgage spreads are well above what UK lenders earn, as analysis by RBC Capital Markets (flagged in the Business Post here) shows. Hardly helpful for any non-bank competing with them.
The asset finance lenders and general non-bank lenders operate in higher-yielding lending markets in which the banks are less active. The fear of NPE build (stimulated, in part, by regulatory penalties) amongst the crop of risk averse listed lenders presumably suppresses domestic banks’ appetite for such lending product when rates push higher, creating a larger addressable market for the non-bank players.
3️⃣ Card spending +5.7% y/y in June:
Bank of Ireland published data last week showing that credit and debit card spending was +5.7% y/y in June, showing that consumer spending is running considerably ahead of CPI (which is running at 1.8%). Cash use is reducing with ATM withdrawals -3.6% in the year to June. More detail here.
4️⃣ Company Snippets:
AIB Group (AIBG) issued two press releases of note last week: 1) It has launched a new Green loan to help businesses transition to a low carbon economy, available at a variable interest rate of 4.95% for amounts between €2k and €100k for each eligible loan purpose according to a press release issue last Monday here. Looks great at first glance but, interestingly, this 4.95% rate is 28bps higher than the average rate on new NFC lending of 4.67% in May per the above CBI table (and 143bps above the average rate on new euro area NFC loans) - and rates have been going down not up! 2) The bank issued a press release on Thursday here announcing the rollout of Microsoft 365 Copilot to the vast majority of its employees, is using Copilot Studio to develop tailored AI solutions, and is planning to introduce a secure enterprise-grade AI coding tool to accelerate software development with GitHub Copilot. This is a sensible and significant digital productivity initiative which should facilitate some cost reduction - important in the context of AIBG’s hard cost target of <€2bn in FY26 (though I suspect that FY26 consensus costs will ‘drift up’ to close to €2.2bn by the time of the publication of FY25 results). That being said it does not demonstrate investment in proprietary AI capabilities and is mostly about leveraging off-the-shelf Microsoft AI tools (according to my own research using AI…) - the very least one would expect a bank of AIBG’s scale to embark on. However, it’s a first step that could pave the way for technological innovation as the press release alludes to.
Bank of Ireland Group (BIRG) announced on Wednesday here the appointment of Emer Finnan as INED. Finnan is a Partner and President Europe with Kildare Partners and has extensive experience in private equity - and in financial services at Investec (INVP), EBS (AIBG), and in various corporate finance roles. Finnan is also a NED on the boards of Glenveagh Properties (GLV) and the Ireland Fund of Great Britain.
Gloria Ortiz, the CEO of Bankinter (Avant Money) noted in an interview with Bloomberg on Monday (see here) that the bank will consider expanding into new markets in the eurozone - both organically or through M&A. Ortiz further noted that Bankinter expects Irish profit before tax (PBT) to reach €100m in three to four years, up from €41m in FY24. The comments in relation to Irish profitability levels indicate that Bankinter’s growth ambition in Ireland may be stronger than previous comments suggested - however, if as I have speculated before, Ortiz is eyeing up increased profitability through liability margin benefit capture following the rollout of deposit product in Ireland (for example, potentially offering attractive rates on demand deposit products relative to the local competition - which could still be well below average eurozone demand product rates) then it won’t need to drive hard loan growth to achieve its profitability objectives.
5️⃣ Shareholding Changes of Note:
AIB Group (AIBG) announced on Monday 7th July that FIL’s shareholding in the bank increased to 3.02% (previously disclosed shareholding: <3%) following a transaction on 3rd July.
AIB Group (AIBG) announced on Thursday 10th July that Wellington’s shareholding in the bank reduced to 4.00% (previously disclosed shareholding: 4.02%) following a transaction on 9th July. In a further announcement on Friday 11th July, AIBG noted that Wellington’s shareholding in the bank reduced to 3.95% following a transaction on 10th July.
🇪🇺 Europe Unbound - My Top Picks 🇪🇺
1️⃣ Banking Union remains in focus:
Following on from my piece on Banking Union in Financials Unshackled Issue 52, I turn again to the topic this week. Interesting to observe the hostilities in Germany towards UniCredit’s (potential) interest in seeking to acquire Commerzbank and merging it with HVB with the German Finance Minister Lars Klingbeil reportedly telling the German press agency DPA that “We expect UniCredit to abandon its takeover attempt” and noting that the German government views the approach as “unfriendly”, according to an article on Bloomberg here. This follows UniCredit’s confirmation on Tuesday that it has received “all necessary legal and regulatory approvals” to convert c.10% of its current interest in Commerzbank held through derivatives into physical shares, as reported by the FT here. The bottom line is that it seems that German politicians do not want to see a domestic ‘national champion bank’ become owned by a foreign acquirer (jobs, sovereign-bank-nexus considerations, German government deposit guarantees) - all of which is against the spirit of the Banking Union project.
So, Paschal Donohoe, the Irish Finance Minister, who has just been appointed as President of the Eurogroup for a third term, will have his work cut out seeking to advance this project (see Business Post article here) - and PR efforts will likely be more focused on the broader savings and investment union (SIU) project I suspect.
2️⃣ Elderson speaks on banks’ ‘good progress’ in managing climate risks
Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the ECB Supervisory Board, spoke on Friday on the positive strides that European banks have made in managing climate and nature-related risks - while making the inevitable observation that more needs to be done. In this latter vein Elderson notes that banks are having difficulties in covering all their important portfolios - with some banks failing to fully consider mortgage lending in their strategies to manage climate and nature-related risks. To help banks improve further, the ECB will publish an updated set of good practices in banks across Europe later this year. Elderson also notes that European banks are will positioned to meet the prudential transition plan requirements, which the ECB will approach in a gradual and tailored manner. Transcript of the speech here.
3️⃣ Other Snippets:
Interesting to read in the Business Post today here that Stripe and the Irish banks have joined the chorus of global voices pressing against the excessive European regulatory burden. As I have written before, European banking regulators need to recognise that there are opportunity costs to their actions - and a linear one-dimensional approach to regulation is not a balanced approach (e.g., ever-rising capital requirements, onerous risk weights, penalising NPEs excessively, driving enormous risk into the private credit space, etc.).
The ECB Governing Council issued a statement on macroprudential policies on Monday 7th July here. The Governing Council calls on national macroprudential authorities to maintain the current resilience of the banking system - while seeking to give a sense of flexibility in its final remarks: “…considering the high level of uncertainty, macroprudential policy needs to remain agile and adapt to changing conditions as needed. Policymakers should continue to closely monitor the situation, as further adverse shocks may require a shift in the policy stance.”.
🌎 Global Unpacked - My Top Pick 🌎
1️⃣ Basel Committee highlights interconnections between banks and non-banks:
The Basel Committee on Banking Supervision (BCBS) published a report on the interconnections between banks and on-bank financial intermediaries (NBFIs) on Thursday (press release here and report here). This is a hot topic with regulators scratching their heads to determine the true level of exposure of the banking sector to the unregulated private capital space. The report doesn’t get into the inner complexities (of leverage on leverage et al.) but is a useful piece of work to help better understand the linkages, with the BCBS noting that: “Euro area banks’ exposures to NBFIs have been broadly stable over time, with funding from NBFIs to banks significantly exceeding claims on NBFIs. Asset exposures have been relatively flat, although within them, loans and the positive fair value of derivatives have gradually increased while reverse repo lending to NBFIs has slightly declined. On the funding side, the scope of supervisory data allows for identification of bank debt securities held by NBFIs. Unsecured deposits are the most significant funding instrument, followed by NBFIs’ debt securities holdings and repo loans from NBFIs…A small group of large, complex and internationally active euro area banks account for a disproportionately large share of exposures to NBFIs. The top 10 banks supervised by the European Central Bank (ECB), including all euro area G-SIBs, hold about 70% of claims on NBFIs and about 60% of NBFI funding, but make up about 55% of total banking assets.”.
📆 The Calendar 📆
Look out for these in the week ahead:
🇮🇪 Tue 15th Jul (21:00 BST): Publication of UK Chancellor Rachel Reeves and Bank of England (BoE) Governor Andrew Bailey Mansion House Speeches
🍺 The Closer 🍺
Before we get to the full Disclaimer, let’s wrap up on a light-hearted note:
🇬🇧 Lots of pushback against the UK Chancellor Rachel Reeves’ plans to reform cash ISAs and hard to say what was the final nail in the coffin for her decision to put the reforms on hold but hats off the Lloyds Banking Group CEO Charlie Nunn who likened the proposals to “capital controls”, noting it is a “difficult slope” for an open economy. These comments from an executive of Nunn’s stature are unlikely to have gone unnoticed. Indeed, some would say that Scottish Widows’ (LLOY) decision to significantly reduce its allocation to UK equities in June was a well-timed move with these reforms in mind.
🇪🇺 JPM’s CEO Jamie Dimon issued a stark warning to European leaders this week: “You’re losing” - in a word of caution in relation to Europe’s well-documented competitiveness issues. Dimon highlighted that Europe’s GDP as a proportion of US GDP has shrunk to 65% from 90% just over a decade ago. It is abundantly clear to me that regulation is a key factor underpinning this relative underperformance.
📰SeaPoint Insights / its founder in the media / public domain again last week:
I was delighted to speak at the UK Finance Annual Mortgages Conference 2025 on Wednesday 9th July; a couple of media mentions last week too.
Have a great week! 🍨
⚠️ Disclaimer ⚠️
The contents of this newsletter and the materials above (“communication”) do NOT constitute investment advice or investment research and the author is not an investment advisor. All content in this communication and correspondence from its author is for informational and educational purposes only and is not in any circumstance, whether express or implied, intended to be investment advice, legal advice or advice of any other nature and should not be relied upon as such. Please carry out your own research and due diligence and take specific investment advice and relevant legal advice about your circumstances before taking any action.
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