British banks withstand disorderly Brexit in Bank of England test

By Huw Jones and David Milliken LONDON (Reuters) - All seven British banks and building societies in this year's Bank of England stress test passed, indicating they could withstand a disorderly Brexit without having to curb lending. The BoE's Financial Policy Committee (FPC) said on Wednesday that it has reviewed a scenario whereby Britain crashes out of the European Union in March with no deal or transition period

Reuters November 29, 2018 03:05:15 IST
British banks withstand disorderly Brexit in Bank of England test

British banks withstand disorderly Brexit in Bank of England test

By Huw Jones and David Milliken

LONDON (Reuters) - All seven British banks and building societies in this year's Bank of England stress test passed, indicating they could withstand a disorderly Brexit without having to curb lending.

The BoE's Financial Policy Committee (FPC) said on Wednesday that it has reviewed a scenario whereby Britain crashes out of the European Union in March with no deal or transition period.

"The FPC judges that the UK banking system is strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit," it said in its twice-yearly Financial Stability Report.

"No bank needs to strengthen its capital position as a result of the stress test," it said, adding that the stress test was tougher on banks than the disorderly Brexit scenario.

Parliament is due to vote on Dec. 11 on Britain's divorce settlement and transition deal with the EU, but it is unclear if it will be approved, raising the prospect of a no-deal Brexit.

HSBC, Barclays, Lloyds, Santander UK, Royal Bank of Scotland, Nationwide Building Society and Standard Chartered all ended the test with capital buffers above their bespoke pass marks, the FPC said.

The test results could, however, dampen expectations of increased payouts by lenders such as Barclays, whose Chief Executive Jes Staley has stoked hopes for investors.

Analysts said that might now have to wait.

"Despite speculation regarding 2019, we reaffirm our expectation of no buyback (at Barclays) until 2020, where our existing forecast is 1 billion pounds,” Ian Gordon, banking analyst at Investec in London, following the test results.

Barclays said in a statement that it remained its intention to more than double its dividend to 6.5 pence per share for 2018, subject to regulatory approval.

ECONOMIC CRASHES

Gordon said other lenders’ plans to increase capital next year - including Lloyds, Standard Chartered and RBS – should be unaffected by the stress tests.

State-controlled RBS sailed through the tests, potentially paving the way it to hike its dividend after in August announcing its first interim payout since its 45 billion pound taxpayer bailout in 2008, of 2 pence per share.

The test assumed deep, theoretical domestic and global economic crashes happening at the same time, along with potentially hefty costs for misconduct.

All seven lenders passed even when the full impact of a new accounting rule on provisioning for souring loans was factored in, the FPC said, though so-called contingent capital had to be written down at Barclays and Lloyds.

The test showed the banks taking a collective loss of 170 billion pounds ($218 billion) of trading and credit losses, but still having high enough capital buffers to maintain lending.

The banks have a trillion pounds of so-called liquid assets, such as bonds and other instruments that can easily be sold at short notice, and they could survive disruption lasting three months to their wholesale funding markets, the BoE said.

"They can now withstand many months without access to foreign exchange markets," the BoE said, adding that the central bank itself is able to lend in all major currencies.

The Bank said it was maintaining the so-called countercyclical capital buffer rate at 1 percent, but that it stood ready to change this "in either direction as the risk environment evolves".

($1 = 0.7809 pounds)

Graphic: British bank shares slide on Brexit fears (https://tmsnrt.rs/2PR51he)

Graphic: Brexit economic impact (https://tmsnrt.rs/2Rl7mxJ)

(Additional reporting by Lawrence White and Iain Withers; Editing by Alexander Smith)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

Subscribe to Moneycontrol Pro at ₹499 for the first year. Use code PRO499. Limited period offer. *T&C apply

also read

Robinhood now a go-to for young investors and short sellers
Business

Robinhood now a go-to for young investors and short sellers

By John McCrank NEW YORK (Reuters) - Robinhood, the online brokerage used by many retail traders to pile in to heavily shorted stocks like GameStop Corp, has made an ambitious push into loaning out its clients' shares to short sellers as it expands its business. The broker had $1.9 billion in shares loaned out as of Dec. 31, nearly three times the $674 million a year earlier, and it was permitted to lend out $4.6 billion worth of securities under margin agreements, around five times bigger than the prior year, according to an annual regulatory filing late on Monday

Wall Street mixed as Apple and Tesla retreat
Business

Wall Street mixed as Apple and Tesla retreat

By Noel Randewich (Reuters) - Wall Street was mixed on Tuesday, with Apple and Tesla losing ground, while materials and energy companies climbed as investors looked toward the U.S. Congress approving another stimulus package.

Biden's SEC nominee vows review of GameStop trading issues, climate disclosures
Business

Biden's SEC nominee vows review of GameStop trading issues, climate disclosures

By Pete Schroeder and Chris Prentice WASHINGTON (Reuters) - U.S. President Joe Biden's pick to head a key market regulator promised on Tuesday a thorough review of issues raised by the GameStop Corp stock frenzy and suggested companies may have to disclose their potential risks from climate change