News


13/06/2016


Bank Credit Update 13 June 2016

Weekly Headlines:
  • Financial markets are experiencing a severe bout of nervous anxiety and heightened volatility ahead of the referendum on the UK’s continued membership of the European Union (EU).
  • The BoE could face overwhelming pressure to slash interest rates to a new low if the UK opts to quit the EU with a 50% chance of an interest rate cut by the end of the year.
  • Political and economic pressures have pushed back market expectations of a UK interest rate rise by the BoE from its current 0.50% level to the middle of 2019.
  • The BoE may continue to sound the alarm over a UK exit from the EU as part of this Thursday’s announcement on the cost of borrowing.
  • Major international banks are preparing for a City exodus in wake of an exit vote with French lenders the latest to sound a jobs warning ahead of the EU referendum.
  • Allied Irish Banks plc (AIB) is set to return to market with the Irish Government finalising plans to privatise the bank seven years after it was bailed out during Ireland’s economic collapse.
  • The more expensive trend in European 5-year CDS spread Index continued over the week, up by 2.1% to 97bps, as markets fear a Brexit outcome ahead of the referendum vote in 10 days’ time.
  • The FTSE 350 Bank Index also continues its downward trend, falling by 3.7% over the week as bank shares continue to suffer from the lower first quarter profits and heightened nervousness caused by Brexit fears.
Major News Stories:

With the referendum on the UK’s continued membership of the European Union (EU) only a little over a week away, financial markets are experiencing a severe bout of nervous anxiety and heightened volatility.

The Bank of England (BoE) could face overwhelming pressure to slash interest rates to a new low if the UK opts to quit the EU. With polls indicating that the likely result is too close to call, investor fears are mounting that a Brexit vote could derail the recovery. Investors are now betting there is a 50% chance of an interest rate cut by the end of the year, according to recent moves in money markets. In March, the prospect of a cut was rated at about 20%.

The growing tension coincides with fresh jitters over the global economy, with investors around the world piling into low-risk government bonds. The political and economic pressures have pushed back market expectations of a UK interest rate rise by the BoE from its current 0.50% level to the middle of 2019 and a growing number of traders now expect the next move to be downwards. Economists believe that the Monetary Policy Committee (MPC) will decide at its monthly meeting this Thursday to hold interest rates at the current level, but many believe a vote to leave the EU could force the MPC’s hand next month.

The BoE could re-enter the Brexit debate this week when it releases its final decision on interest rates before the UK referendum on EU membership. The BoE is not bound by “purdah” rules restricting civil servants from publishing material relating to the vote. As such, it may continue to sound the alarm over a UK exit from the EU as part of this Thursday’s announcement on the cost of borrowing. Analysts believe that BoE will have license to wade back into the EU debate if the referendum is seen to hamper attempts to hit its inflation target of 2.0%.

It appears that major international banks are preparing for a City exodus in wake of an exit vote with French lenders the latest to sound a jobs warning ahead of the EU referendum. A slew of international banks are making contingency plans to transfer thousands of workers’ jobs out of the City of London as the UK referendum on EU membership approaches. With polls tightening ahead of the June 23 vote, foreign lenders are facing the prospect that their London-based operations could lose the right to operate freely across Europe under the EU’s passporting rules.

Allied Irish Banks plc (AIB) is set to return to market with the Irish Government finalising plans to privatise the bank seven years after it was bailed out during Ireland’s economic collapse.  It is understood that the Irish Government intend to offload a stake of about 25% in AIB in a stock market offering early next year in a deal that will value the lender at about €10 million (£7.9 million). The offer would mark a symbolic moment for the Irish government, which had to go cap in hand to the European Union and International Monetary Fund for a €67bn bailout in 2010 after a collapse in the property market. However the country was the first of the bailed-out EU states to repay its rescue loans, and it is now the fastest-growing economy in Europe.

See below for 5-year CDS spread and share price movements for the week.
5-YEAR CDS SPREADS AND SHARE PRICES 
Weekly Movements
Date: 13th June 2016
5-Year CDS Spreads (bps) Equity Share Prices (LCL)
Financial Institutions 10-Jun-16 3-Jun-16 Chg 10-Jun-16 3-Jun-16 Chg
Parent: Aldermore Group plc
Aldermore Bank plc n/a n/a n/a 2.00 2.15 -7.0%
Irish Sovereign
Allied Irish Banks 63 62 +1.6% 6.80 6.80 0.0%
Parent: Arbuthnot Banking Group plc
Arbuthnot Latham & Co. n/a n/a n/a 15.60 15.25 +2.3%
Aust and NZ Banking Group Ltd 84 90 -6.7% 24.92 25.09 -0.7%
Banco Bilbao Vizcaya Argentaria S.A. 137 129 +6.2% 5.34 5.71 -6.5%
Parent: Barclays plc
Barclays Bank plc 112 109 +2.8% 1.69 1.80 -6.1%
BNP Paribas S.A. 86 84 +2.4% 44.30 46.32 -4.4%
Parent: Close Brothers Group plc
Close Brothers Limited n/a n/a n/a 12.80 13.08 -2.1%
Credit Agricole S.A. 83 80 +3.8% 8.19 8.65 -5.3%
Parent: Credit Suisse Group AG
Credit Suisse AG 134 129 +3.9% 20.45 20.88 -2.1%
Deutsche Bank AG 178 169 +5.3% 14.04 15.00 -6.4%
Parent: HSBC Holdings plc
HSBC Bank plc 93 94 -1.1% 4.34 4.45 -2.5%
Parent: ING Groep N.V.
ING Bank N.V. 74 72 +2.8% 10.29 10.84 -5.1%
Intesa Sanpaolo S.p.A. 129 124 +4.0% 2.11 2.21 -4.5%
Parent: Investec plc
Investec Bank plc n/a n/a n/a 4.58 4.55 +0.7%
Parent: Lloyds Banking Group plc
Lloyds Bank plc 93 90 +3.3% 0.67 0.70 -4.3%
 
Metro Bank plc n/a n/a n/a 22.10 22.19 -0.4%
 
Nationwide Building Society 78 78 0.0% n/a n/a n/a
Nordea Bank AB 66 63 +4.8% 77 80 -3.8%
Parent: RBS Group plc
Royal Bank of Scotland plc 121 120 +0.8% 2.14 2.37 -9.7%
Ult. Parent: Banco Santander S.A.
Santander UK plc 78 78 0.0% 3.86 4.05 -4.7%
Shawbrook Group plc n/a n/a n/a 2.48 2.88 -13.9%
Societe Generale 83 80 +3.8% 32.68 35.61 -8.2%
Parent: Standard Chartered plc
Standard Chartered Bank 154 150 +2.7% 5.16 5.27 -2.1%
Svenska Handelsbanken AB 65 63 +3.2% 100 103 -2.9%
Unicredit  S.p.A. 173 166 +4.2% 2.38 2.64 -9.8%
 
FTSE 350 BANK INDEX n/a n/a n/a 3179 3302 -3.7%
 
SNR FIN ITRAX CDS 5-YEARS 97 95 +2.1% n/a n/a n/a

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