U.K. Banks Brace for Election 'Wobble'
June 09 2017 - 10:44AM
Dow Jones News
By Margot Patrick
LONDON--Shares in British banks fell Friday on worries about the
economy faltering in an uncertain political climate.
Prime Minister Theresa May said she will form a government and
is looking for support from the Democratic Unionist Party, a small
Northern Irish party, after her Conservatives failed to win a
majority in Thursday's snap election.
But investors weren't immediately convinced by the plan and
shares in Royal Bank of Scotland Group PLC, Barclays PLC, Lloyds
Banking Group PLC and other domestic lenders only marginally
improved from earlier losses of 1% to 4% following Ms. May's
statement early Friday afternoon. The Euro Stoxx index was up
0.3%.
Bank analysts said consumer confidence could wobble because of
political instability or if Britain's plan to leave the European
Union is delayed. U.K. economic growth slowed in the first quarter
as consumers pared spending, and banks have been starting to pull
back from a four-year lending binge in unsecured credit.
Chirantan Barua, an analyst at Bernstein, said the election
could by a catalyst for draining excess liquidity from the banking
system. He said the U.K. could find it hard to draw in capital and
investments until the political situation clarifies.
Shares in Royal Bank of Scotland fell as much as 4% early Friday
on the heightened chance of the main opposition party gaining power
if a second election is needed. The Labour party in its election
manifesto said it would break up RBS into smaller local lenders,
which analysts say would prolong a nine-year effort to move the
bank from 71% state ownership.
Barclays and Lloyds fell 1% and Metro Bank PLC fell 3%. Rising
gilt yields amid political uncertainty would add to the banks'
funding costs and squeeze margins.
A fall in the pound Friday was good news, though, for the U.K.'s
Asia-focused banks HSBC and Standard Chartered, and their shares
climbed slightly. The two banks' stocks became cheaper to buy with
dollars, and most of their revenues aren't in pounds. HSBC makes
about 25% of its revenue in the U.K. while Standard Chartered has
only minimal sterling-denominated revenue. This means that profits
will be higher when translated into weakened sterling.
Write to Margot Patrick at margot.patrick@wsj.com
(END) Dow Jones Newswires
June 09, 2017 10:29 ET (14:29 GMT)
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