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Stress tests: Bank of England warns disorderly Brexit would be painful - live! Stress tests: Bank of England warns disorderly Brexit would be painful - live!
(35 minutes later)
Elsewhere in the City, hedge funds who bet against online grocery firm Ocado are nursing burned fingers today.
Shares in Ocado have surged by over 20% today, after it announced it had secured a deal French retailer Groupe Casino.
Under the agreement, Casino will build a new “state-of-the-art automated warehouse” based on Ocado’s technology.
Ocado has long been promising that it was working on a major overseas deal with a European retailer. But it has become one of the most ‘shorted’ stocks in the City, with speculators betting that it wouldn’t deliver the goods....
Ocado shares jump more than 20% after e-commerce deal with French retailer Casino. pic.twitter.com/c2mu8PcBmj
Ocado shorts getting burned today. Short interest at around 22% (says CS), one of most heavily shorted stocks in the UK
Lloyds Banking Group are now the biggest faller on the FTSE 100, down 2.7% at 63.8p, despite passing today’s stress tests.Lloyds Banking Group are now the biggest faller on the FTSE 100, down 2.7% at 63.8p, despite passing today’s stress tests.
Barclays are also lagging, down 1.7%, having struggled in the stress tests. Other banks areBarclays are also lagging, down 1.7%, having struggled in the stress tests. Other banks are
David Madden of CMC Markets says bank shares are a mixed bunch today:David Madden of CMC Markets says bank shares are a mixed bunch today:
Despite been given a clean bill of health, Lloyds, RBS and Barclays are in the red, while HSBC and Standard Chartered are in positive territory. Barclays and RBS were cited as the weakest of the bunch.Despite been given a clean bill of health, Lloyds, RBS and Barclays are in the red, while HSBC and Standard Chartered are in positive territory. Barclays and RBS were cited as the weakest of the bunch.
BoE chief Mark Carney stated the UK banking system can withstand the UK leaving the EU, but a ‘disorderly’ and ‘sharp’ Brexit could be costly. HSBC and Standard Chartered have far more exposure to emerging markets than they do to Europe, which is helping the share price this morning.BoE chief Mark Carney stated the UK banking system can withstand the UK leaving the EU, but a ‘disorderly’ and ‘sharp’ Brexit could be costly. HSBC and Standard Chartered have far more exposure to emerging markets than they do to Europe, which is helping the share price this morning.
City analysts are now giving their verdict on today’s UK bank stress tests.City analysts are now giving their verdict on today’s UK bank stress tests.
Rob James, co-manager of the Old Mutual Contingent Capital Fund, is impressed that Britain’s financial sector can stomach losses of £50bn if the economy takes a sharp dive.Rob James, co-manager of the Old Mutual Contingent Capital Fund, is impressed that Britain’s financial sector can stomach losses of £50bn if the economy takes a sharp dive.
He writes:He writes:
What is deeply reassuring about this year’s test... is that every bank passed. So in answer to that perennial question, “Are we nearly there yet?” this time the response is a resounding, “yes”.What is deeply reassuring about this year’s test... is that every bank passed. So in answer to that perennial question, “Are we nearly there yet?” this time the response is a resounding, “yes”.
The implication is that our banking system can now absorb catastrophic losses, including the continuation of litigation and conduct fines, and still be in a position to supply credit to the economy during the stress.The implication is that our banking system can now absorb catastrophic losses, including the continuation of litigation and conduct fines, and still be in a position to supply credit to the economy during the stress.
Joe Dickerson, equity analyst at Jefferies, says shareholders shouldn’t expect any big windfalls from the banks, though.Joe Dickerson, equity analyst at Jefferies, says shareholders shouldn’t expect any big windfalls from the banks, though.
Our conclusion is that investors expecting near-term capital distribution from Standard Chartered and Barclays may be disappointed and for Lloyds...investors shouldn’t be heroic about large special distributions in 2018-19.Our conclusion is that investors expecting near-term capital distribution from Standard Chartered and Barclays may be disappointed and for Lloyds...investors shouldn’t be heroic about large special distributions in 2018-19.
William Anderson Jones, Head of UK Corporate Dealing at RationalFX, says the stress tests should reassure investors.William Anderson Jones, Head of UK Corporate Dealing at RationalFX, says the stress tests should reassure investors.
“UK banks have proven that they would be able to withstand a disorderly Brexit, as results of recent stress tests have shown today. BoE Governor Mark Carney confirmed that all of Britain’s biggest banks were able to pass their most rigorous examination yet, testing their ability to withstand a financial crisis.“UK banks have proven that they would be able to withstand a disorderly Brexit, as results of recent stress tests have shown today. BoE Governor Mark Carney confirmed that all of Britain’s biggest banks were able to pass their most rigorous examination yet, testing their ability to withstand a financial crisis.
The resilience of the banking system will prove a reassurance to investors, as the outcome of Brexit remains unclear. The pound has shown little reaction, remaining mostly steady after reaching an eight-week high against the dollar yesterday.The resilience of the banking system will prove a reassurance to investors, as the outcome of Brexit remains unclear. The pound has shown little reaction, remaining mostly steady after reaching an eight-week high against the dollar yesterday.
Good news! The global economy is picking up momentum, thanks to a “broad-based and synchronised improvement in growth rates”.Good news! The global economy is picking up momentum, thanks to a “broad-based and synchronised improvement in growth rates”.
That’s according to the OECD’s latest economic outlook. It predicts the global economy will grow by 3.6% this year, 3.7% in 2018 and 3.6% in 2019That’s according to the OECD’s latest economic outlook. It predicts the global economy will grow by 3.6% this year, 3.7% in 2018 and 3.6% in 2019
But there’s bad news too -- Britain will lag behind other major economies over the next few years.But there’s bad news too -- Britain will lag behind other major economies over the next few years.
The OECD says:The OECD says:
In the United Kingdom, the growth slowdown is expected to continue through 2018, due to continuing uncertainty over the outcome of negotiations around the decision to leave the European Union and the impact of higher inflation on household purchasing power.In the United Kingdom, the growth slowdown is expected to continue through 2018, due to continuing uncertainty over the outcome of negotiations around the decision to leave the European Union and the impact of higher inflation on household purchasing power.
So the OECD expects UK GDP to rise by 1.5% this year (down from 1.6% previously).So the OECD expects UK GDP to rise by 1.5% this year (down from 1.6% previously).
Growth will then slow to 1.2% in 2018 (up from 1% before), and then 1.1% in 2019.Growth will then slow to 1.2% in 2018 (up from 1% before), and then 1.1% in 2019.
In contrast, the eurozone is expected to grow by 2.4% in 2017, 2.1% in 2018, and 1.9% in 2019.In contrast, the eurozone is expected to grow by 2.4% in 2017, 2.1% in 2018, and 1.9% in 2019.
Today is a very busy day for UK banking journalists, as they chew through the Bank of England’s stress tests and financial stability report. These are detailed documents that deserve proper analysis.Today is a very busy day for UK banking journalists, as they chew through the Bank of England’s stress tests and financial stability report. These are detailed documents that deserve proper analysis.
And yet... the Financial Conduct Authority, Britain’s City watchdog, has decided to publish the final summary of its report into how small business owners were mistreated by Royal Bank of Scotland.And yet... the Financial Conduct Authority, Britain’s City watchdog, has decided to publish the final summary of its report into how small business owners were mistreated by Royal Bank of Scotland.
This report was commissioned in 2014, and finished in October 2016. The FCA has been under pressure to publish it, following allegations that RBS had put struggling businesses into its Global Restructuring Group and then deliberately mistreated them.This report was commissioned in 2014, and finished in October 2016. The FCA has been under pressure to publish it, following allegations that RBS had put struggling businesses into its Global Restructuring Group and then deliberately mistreated them.
I can’t imagine why they thought this would be a good day to release it, though....I can’t imagine why they thought this would be a good day to release it, though....
Really @TheFCA? Publishing the @RBS GRG final summary on the same morning as literally ALL the banking reporters are up to their eyes with @bankofengland stress tests and FSR?Really @TheFCA? Publishing the @RBS GRG final summary on the same morning as literally ALL the banking reporters are up to their eyes with @bankofengland stress tests and FSR?
Pretty cynical timing from @theFCA. It's published its final summary of the RBS GRG "independent review" on the same day banking reporters are up to their eyes reporting BoE stress tests https://t.co/XArtA5vtOWPretty cynical timing from @theFCA. It's published its final summary of the RBS GRG "independent review" on the same day banking reporters are up to their eyes reporting BoE stress tests https://t.co/XArtA5vtOW
Anyway, the final summary is online here.Anyway, the final summary is online here.
The inquiry has found that Royal Bank of Scotland was guilty of “widespread inappropriate treatment of SME customers”. It says the bank failed to support small businesses to recover, and was too focused on raising fees to cut its own debts. RBS also failed to handle complaints properly.The inquiry has found that Royal Bank of Scotland was guilty of “widespread inappropriate treatment of SME customers”. It says the bank failed to support small businesses to recover, and was too focused on raising fees to cut its own debts. RBS also failed to handle complaints properly.
Some of those failings were “systemic”, as RBS failed to manage the” conflicts of interest inherent in GRG’s twin objectives” (ie, helping distressed businesses, and recovering the money they owed RBS).Some of those failings were “systemic”, as RBS failed to manage the” conflicts of interest inherent in GRG’s twin objectives” (ie, helping distressed businesses, and recovering the money they owed RBS).
But, the inquiry didn’t accept that RBS had deliberately tried to drive firms into its GRG division so they could be pillaged.But, the inquiry didn’t accept that RBS had deliberately tried to drive firms into its GRG division so they could be pillaged.
So, is this the end of the matter?So, is this the end of the matter?
Possibly not, judging by this enigmatic line in the report:Possibly not, judging by this enigmatic line in the report:
The FCA has been conducting a general investigation into matters contained in the report which we announced in November 2016. We have now decided to carry out a more focussed investigation.The FCA has been conducting a general investigation into matters contained in the report which we announced in November 2016. We have now decided to carry out a more focussed investigation.
Here’s the Associated Press’s take:Here’s the Associated Press’s take:
Britain’s biggest banks can withstand a series of economic shocks including a no-deal Brexit that would have more severe impacts than what they experienced during the global financial crisis, the Bank of England said on Tuesday.Britain’s biggest banks can withstand a series of economic shocks including a no-deal Brexit that would have more severe impacts than what they experienced during the global financial crisis, the Bank of England said on Tuesday.
While concluding that lenders can deal with Britain crashing out of the European Union without a deal and restrictions imposed on British business, the Bank of England warned that additional problems may emerge if a “disorderly” Brexit takes place at the same time as a sharp global recession.While concluding that lenders can deal with Britain crashing out of the European Union without a deal and restrictions imposed on British business, the Bank of England warned that additional problems may emerge if a “disorderly” Brexit takes place at the same time as a sharp global recession.
In its annual stress test of the sector, the central bank said the country’s biggest lenders, such as Barclays and Lloyds Bank, were “resilient” to a raft of adverse scenarios, including deep simultaneous recessions at home and abroad and hefty falls in the price of assets.In its annual stress test of the sector, the central bank said the country’s biggest lenders, such as Barclays and Lloyds Bank, were “resilient” to a raft of adverse scenarios, including deep simultaneous recessions at home and abroad and hefty falls in the price of assets.
Bank of England Governor Mark Carney said:Bank of England Governor Mark Carney said:
“Despite the severity of the tests, for the first time since the bank began stress testing in 2014, no bank needs to strengthen its capital position as a result.”“Despite the severity of the tests, for the first time since the bank began stress testing in 2014, no bank needs to strengthen its capital position as a result.”
More here.More here.
Santander UK say they’re pleased with the stress test results:Santander UK say they’re pleased with the stress test results:
Once again, Santander UK had the lowest stressed CET1 ratio impact of all participating firms, demonstrating our resilient balance sheet and low risk profile.Once again, Santander UK had the lowest stressed CET1 ratio impact of all participating firms, demonstrating our resilient balance sheet and low risk profile.
[CET1 = Common Equity Tier 1, a measure of a bank’s financial strength][CET1 = Common Equity Tier 1, a measure of a bank’s financial strength]
Twitter have collated the best tweets about today’s stress test results:Twitter have collated the best tweets about today’s stress test results:
The @bankofengland modelled an economy with high unemployment and interest rates and found that all major lenders passed its stress tests.https://t.co/7GAbFdoQncThe @bankofengland modelled an economy with high unemployment and interest rates and found that all major lenders passed its stress tests.https://t.co/7GAbFdoQnc
Our City editor Jill Treanor reports that today’s stress tests showed that the UK banking sector could survive a bad Brexit outcome:Our City editor Jill Treanor reports that today’s stress tests showed that the UK banking sector could survive a bad Brexit outcome:
High street banks can withstand a disorderly Brexit, the Bank of England has said, even though Royal Bank of Scotland and Barclays struggled in its latest health check on the sector.High street banks can withstand a disorderly Brexit, the Bank of England has said, even though Royal Bank of Scotland and Barclays struggled in its latest health check on the sector.
For the first time since 2014, when Threadneedle Street conducted its first annual stress tests, the major lenders have not been required by the UK central bank to raise billions of pounds more of capital to strengthen their finances.For the first time since 2014, when Threadneedle Street conducted its first annual stress tests, the major lenders have not been required by the UK central bank to raise billions of pounds more of capital to strengthen their finances.
But RBS, 70%-owned by the taxpayer, and Barclays only passed the hurdle rate set by the Bank because the regulator took account of efforts they had already made to increase their financial strength since the end of last year, when the tests were applied.But RBS, 70%-owned by the taxpayer, and Barclays only passed the hurdle rate set by the Bank because the regulator took account of efforts they had already made to increase their financial strength since the end of last year, when the tests were applied.
The Bank of England is alert to the risks poised by Brexit, and in its half-yearly review of risks to the financial system warns that a disorderly Brexit coupled with a severe global recession and more multibillion pound fines from global regulators could force it to reconsider its assessment.The Bank of England is alert to the risks poised by Brexit, and in its half-yearly review of risks to the financial system warns that a disorderly Brexit coupled with a severe global recession and more multibillion pound fines from global regulators could force it to reconsider its assessment.
Guardian: High street banks ‘can cope with disorderly Brexit’Guardian: High street banks ‘can cope with disorderly Brexit’
The Times’s Katherine Griffiths points out that this year’s tests were pretty tough:The Times’s Katherine Griffiths points out that this year’s tests were pretty tough:
Britain’s big banks can withstand a hard Brexit and still keep lending but Barclays and Royal Bank of Scotland struggled to pass the Bank of England’s latest stress tests.Britain’s big banks can withstand a hard Brexit and still keep lending but Barclays and Royal Bank of Scotland struggled to pass the Bank of England’s latest stress tests.
The seven biggest lenders passed a stress test that was as tough as if the UK crashed out of the European Union, the Bank said, with sterling slumping, interest rates rising to 4 per cent and a record housing crash.The seven biggest lenders passed a stress test that was as tough as if the UK crashed out of the European Union, the Bank said, with sterling slumping, interest rates rising to 4 per cent and a record housing crash.
All seven lenders passed but Barclays and Royal Bank of Scotland struggled. Barclays emerged with the smallest headroom.All seven lenders passed but Barclays and Royal Bank of Scotland struggled. Barclays emerged with the smallest headroom.
The Times: Big banks can cope with hard BrexitThe Times: Big banks can cope with hard Brexit
Over in the FT, Caroline Binham and Martin Arnold flag up that the BoE is making banks strengthen their financial positions:Over in the FT, Caroline Binham and Martin Arnold flag up that the BoE is making banks strengthen their financial positions:
The Bank of England is forcing UK banks to hold an extra £6bn in capital to guard against risks beyond that of Brexit, as it called on the UK and the European Union to introduce legislation to avoid a post-Brexit crisis in derivatives and insurance markets.The Bank of England is forcing UK banks to hold an extra £6bn in capital to guard against risks beyond that of Brexit, as it called on the UK and the European Union to introduce legislation to avoid a post-Brexit crisis in derivatives and insurance markets.
The BoE said on Tuesday that it is raising a special buffer half a percentage point, to 1 per cent, to lock in capital that banks are currently holding voluntarily. The aim is for lenders to better withstand against “material” macroeconomic risks beyond Brexit, such as global debt levels, asset valuations and misconduct costs.The BoE said on Tuesday that it is raising a special buffer half a percentage point, to 1 per cent, to lock in capital that banks are currently holding voluntarily. The aim is for lenders to better withstand against “material” macroeconomic risks beyond Brexit, such as global debt levels, asset valuations and misconduct costs.
The buffer could raise again next year, the central bank warned. A disorderly Brexit is unlikely, the BoE forecasts.The buffer could raise again next year, the central bank warned. A disorderly Brexit is unlikely, the BoE forecasts.
Financial Times: BoE demands extra £6bn buffer from banks; calls for new post-Brexit derivatives rulesFinancial Times: BoE demands extra £6bn buffer from banks; calls for new post-Brexit derivatives rules
Iain Withers of the Daily Telegraph points out that shareholders would suffer if the banks incurred hefty losses.Iain Withers of the Daily Telegraph points out that shareholders would suffer if the banks incurred hefty losses.
The report showed that in the stress test scenario all but Nationwide would stop paying out a dividend within three years, and the building society would pay out just £100m.The report showed that in the stress test scenario all but Nationwide would stop paying out a dividend within three years, and the building society would pay out just £100m.
While this year’s stress test did not explicitly model a ‘hard Brexit’ scenario, the Bank said it was sufficiently severe to give it confidence the UK’s financial system would keep lending to the real economy even in a disorderly exit from the EU.While this year’s stress test did not explicitly model a ‘hard Brexit’ scenario, the Bank said it was sufficiently severe to give it confidence the UK’s financial system would keep lending to the real economy even in a disorderly exit from the EU.
However the report warned politicians on both sides of the Channel to take several important actions to reduce the risks from Brexit, including agreeing a swift transition period and passing legislation to resolve potential contractual conflicts on trillions of pounds of derivative contracts.However the report warned politicians on both sides of the Channel to take several important actions to reduce the risks from Brexit, including agreeing a swift transition period and passing legislation to resolve potential contractual conflicts on trillions of pounds of derivative contracts.
Telegraph: UK banks can weather chaotic Brexit but RBS and Barclays in worst shape, says Bank of EnglandTelegraph: UK banks can weather chaotic Brexit but RBS and Barclays in worst shape, says Bank of England
The press conference wraps up with another warning from Mark Carney that a no-deal Brexit would be undesirable for everyone involved.The press conference wraps up with another warning from Mark Carney that a no-deal Brexit would be undesirable for everyone involved.
Q: Is the Bank of England concerned about the row at the London Stock Exchange over its leadership?Q: Is the Bank of England concerned about the row at the London Stock Exchange over its leadership?
Mark Carney replies that the LSE plays an important role in UK financial stability. Its CEO Xavier Rolet has made an “extraordinary contribution....but everything comes to an end”.Mark Carney replies that the LSE plays an important role in UK financial stability. Its CEO Xavier Rolet has made an “extraordinary contribution....but everything comes to an end”.
Carney says he’s “a bit mystified” by the row over Rolet’s succession.Carney says he’s “a bit mystified” by the row over Rolet’s succession.
[Explainer: Rolet’s departure was announced last month. It has since emerged that he had been asked to step down by the board, after falling out with chairman Donald Brydon.[Explainer: Rolet’s departure was announced last month. It has since emerged that he had been asked to step down by the board, after falling out with chairman Donald Brydon.
Activist investor the Children’s Investment Fund is now demanding that Brydon leaves, and Rolet stays on #developing #popcorn]Activist investor the Children’s Investment Fund is now demanding that Brydon leaves, and Rolet stays on #developing #popcorn]
Q: Are UK banks being too complacent about the impact of Fintech, by assuming they can cut costs while maintaining market share?Q: Are UK banks being too complacent about the impact of Fintech, by assuming they can cut costs while maintaining market share?
That’s the challenge, Carney replies.That’s the challenge, Carney replies.
UK banks are assuming that they can use new technology to bring down the cost of acquiring new customers.UK banks are assuming that they can use new technology to bring down the cost of acquiring new customers.
From next year, it will be easier for customers to shift accounts. And that could mean that some banks become less “front-facing”, as new challengers reshape the industry.From next year, it will be easier for customers to shift accounts. And that could mean that some banks become less “front-facing”, as new challengers reshape the industry.