News


05/06/2017


Flagstone Bank Credit Update 5 June 2017

Monthly Headlines:
  • The latest Markit/CIPS construction purchasing managers’ index (PMI) survey indicated that activity in the UK construction sector expanded at its fastest rate in 17 months in May, rising to 56.0 from 53.1 in April.
  • The latest Markit/CIPS manufacturing purchasing managers’ index (PMI) slipped to 56.7 in May from a three-year high of 57.3 in April but orders still grew at the second-fastest rate in the past three years.
  • RBS could be forced to increase its settlement offer to those shareholders who are still suing the bank after it emerged that they are close to securing sufficient funds to continue their court action.
  • The American hedge fund owners of the Co-operative Bank are expected to invest up to £300m as part of a rescue deal for the troubled former mutual.
  • The Irish government has finally announced its planned €12bn (£10.4bn) float of Allied Irish Banks plc (AIB) in what is likely to be one of the biggest initial public offerings in London in recent years.
  • The FTSE 350 Bank Index fell slightly by 0.4% over the week to 4,325, on profit-taking after the upward trend of the last few weeks, on positive market sentiment after the French presidential election result.
  • The ITRAXX Europe Senior Financials 5-year CDS Index has given up some of its recent margin improvement, increasing by 5.3% to 70bps over the week, as markets await the outcome of the UK general election.
General Commentary:

The latest Markit/CIPS construction purchasing managers’ index (PMI) survey indicated that activity in the UK construction sector expanded at its fastest rate in 17 months in May, boosted by a surprise rebound in homebuilding. The index rose to 56.0 from 53.1 which was its highest level since December 2015. Economists stated that a sustained rebound in residential building provides an encouraging sign that the recent soft patch for property values has not deterred new housing supply – pointing to strong labour market conditions, resilient demand and ultra-low mortgage rates that appear to have helped boost work on residential development projects. The data is at odds with the Nationwide Building Society report that indicated greater caution by homebuyers and lenders.

Meanwhile the latest Markit/CIPS manufacturing purchasing managers’ index (PMI) slipped to 56.7 in May from a three-year high of 57.3 in April. Manufacturers in the PMI survey reported a solid increase in foreign demand and companies reported strong growth in production for both business customers and consumers. However the survey indicated that orders were growing at the second-fastest rate in the past three years which was just off April’s peak. The findings were consistent with similar upbeat results in a survey by the Confederation of British Industry in early May.

Analysts believe that the Royal Bank of Scotland (RBS) could be forced to increase its settlement offer to those shareholders who are still suing the bank after it emerged that they are close to securing sufficient funds to continue their court action against the taxpayer-backed lender. The shareholders claim that RBS and its directors misled them about the bank’s financial health in the prospectus for its ill-fated £12.0bn rights issue in 2008. RBS, which is 72% owned by the taxpayer, have denied the allegation but have settled the bulk of claims in the case without admitting liability. The shareholders who are still holding out include current and former RBS staff and are believed to have raised more than £4.0m of the estimated £7.0m needed to continue the case.

The American hedge fund owners of the Co-operative Bank (Co-op bank) are expected to invest up to £300m as part of a rescue deal for the troubled former mutual. Silver Point Capital, Golden Tree Asset Management and other vulture funds are believed to be in pole position to take full ownership of the bank. The repayment of a £400m bond due in September has piled pressure on the bank’s owners to find an urgent solution as debt markets typically dry up in summer. Once the hedge funds commit to pumping in rescue funds it is expected that the Co-op bank will then launch a debt-for-equity swap to raise an additional £450m. The Co-op bank had previously announced that it would need as much as £750m of new capital to prevent it being forced into an orderly wind-down by the Bank of England. It is understood that Virgin Money and Clydesdale Bank are no longer interested in a takeover of the bank.

The Irish government has finally announced its planned float of Allied Irish Banks plc (AIB) in what is likely to be one of the biggest initial public offerings in London in recent years. The Irish state currently owns around 99.9pc of AIB and plans to float 25% of its stake on the London and Irish stock exchanges. AIB had traded on both stock exchanges before it was nationalised in 2010 when the Irish government injected €21.0bn into the bank as a result of the financial crisis. The IPO is expected to take place in the coming weeks and is expected to value AIB at around €12.0bn. This would make it the biggest flotation in London since the Glencore IPO in 2011 and comes after AIB managed to both reduce the number of non-performing loans in its loan book and generate a profit in each of the past three years. The full proceeds from the IPO will be received by the Irish government.

See below for 5-year CDS spread and share price movements for the last week.
5-YEAR CDS SPREADS AND SHARE PRICES 
Movements over the Last Week
Date: 5th June 2017
5-Year CDS Spreads (bps) Equity Share Prices 
Financial Institutions 02-Jun-17 26-May-17 Chg 02-Jun-17 26-May-17 Chg
ABN AMRO Groep N.V. n/a n/a n/a 22.85 23.41 -2.4%
Parent: Aldermore Group plc
Aldermore Bank plc n/a n/a n/a 232 246 -5.7%
Irish Sovereign
Allied Irish Banks 45 44 2.9% 6.81 8.60 -20.9%
Parent: Arbuthnot Banking Group plc
Arbuthnot Latham & Co. n/a n/a n/a 14.80 14.82 -0.2%
Aust and NZ Banking Group Ltd 71 65 9.0% 28.28 28.22 +0.2%
Banco Bilbao Vizcaya Argentaria S.A. 95 91 4.2% 7.24 7.45 -2.8%
Parent: Barclays plc
Barclays Bank plc 63 59 6.3% 211 212 -0.4%
BNP Paribas S.A. 53 52 1.9% 63.40 66.39 -4.5%
Parent: Close Brothers Group plc
Close Brothers Limited n/a n/a n/a 16.09 16.12 -0.2%
Credit Agricole S.A. 52 52 0.4% 13.79 14.50 -4.9%
Parent: Credit Suisse Group AG
Credit Suisse AG 76 75 1.1% 13.36 13.69 -2.4%
Deutsche Bank AG 100 97 2.8% 15.59 16.49 -5.5%
Parent: HSBC Holdings plc
HSBC Bank plc 52 51 2.8% 678 675 +0.5%
Parent: ING Groep N.V.
ING Bank N.V. 43 42 3.4% 14.93 15.20 -1.8%
Intesa Sanpaolo S.p.A. 132 120 10.3% 2.59 2.62 -1.2%
Parent: Investec plc
Investec Bank plc n/a n/a n/a 598 623 -4.0%
Parent: Lloyds Banking Group plc
Lloyds Bank plc 54 52 4.8% 69 72 -3.3%
Metro Bank plc n/a n/a n/a 37.25 37.20 +0.1%
Nordea Bank AB 38 39 -1.7% 111 113 -2.0%
Parent: RBS Group plc
Royal Bank of Scotland plc 76 72 5.0% 258 262 -1.2%
Ult. Parent: Banco Santander S.A.
Santander UK plc 69 68 1.0% 5.82 5.87 -0.8%
Shawbrook Group plc
Shawbrook Bank Limited n/a n/a n/a 340 341 -0.2%
Societe Generale 53 51 4.8% 47.30 49.35 -4.1%
Parent: Standard Chartered plc
Standard Chartered Bank 74 68 8.2% 745 734 +1.6%
Svenska Handelsbanken AB 36 36 1.0% 121 123 -1.1%
Unicredit  S.p.A. 145 134 8.4% 15.49 16.59 -6.6%
FTSE 350 BANK INDEX n/a n/a n/a 4325 4341 -0.4%
SNR FIN ITRAX CDS 5-YEARS 70 66 5.3% n/a n/a n/a

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