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UK Banks Diverge On Stress Test Results

By London Capital Group (Ipek Ozkardeskaya)Market OverviewNov 30, 2016 05:34AM ET
UK Banks Diverge On Stress Test Results
By London Capital Group (Ipek Ozkardeskaya)   |  Nov 30, 2016 05:34AM ET
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The FTSE 100 opened flat. UK mining stocks sold-off aggressively, as commodities softened during the Asian session.

Rio Tinto (NYSE:RIO) (-2.33%), Glencore (LON:GLEN) (-2.29%), BHP Billiton (NYSE:BBL) (-1.90%), Anglo American (LON:AAL) (-2.78%)

The Bank of England’s (BoE) stress test has been the main highlight for UK banking stocks.

The stress test was conducted under the new annual cyclical scenario, taking into account recession risks and financial shocks, therefore was more severe than its predecessors.

The BoE’s Financial Stability Report had some good and some bad news.

Fortunately for the UK, the results showed greater balance sheet resilience across the UK’s banking sector. According to the BoE, UK banks are in a position to give credit to households and businesses during periods of severe stress. This is comforting news for all sectors, which may face uncertain times as the UK prepares to leave the European Union.

Naturally, the BoE warned of high risks to the UK’s financial stability. The major risk factors included the Chinese slowdown, the European banking sector and Brexit.

Brexit risk

Given that Europe’s financial and banking activity is concentrated in London, a change in operations could have a severe impact on both the UK and the EU’s economies.

Prime Minister Theresa May’s motivation to kick-off the Brexit process by March 2017 could increase the BoE’s anxiety, which urges for sufficient time for business to acclimate to the post-European Union era.

Therefore, a ‘hard Brexit’ is a still a substantial risk, as the BoE cites that if ‘adjustments take place in a short timeframe, there could be a greater risk of disruption to services provided to European real economy, which could spill back to the UK economy through trade and financial linkages.’

Stress test results

UK’s financials were mixed at the open. Banks having provided strong results diverged positively.

RBS (NYSE:RBS) (-2.59%) failed to pass the stress test, therefore had to submit a new plan to strengthen its capital.

Standard Chartered (LON:STAN) (-0.52%) and Barclays (NYSE:BCS) (-0.02%) revealed some ‘capital inadequacies’, yet were not required to provide a revised capital plan.

HSBC (NYSE:HSBC) (+0.30%), Lloyds (NYSE:LYG) (+1.37%), Santander (NYSE:SAN) passed the test.

UK Banks Diverge On Stress Test Results

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UK Banks Diverge On Stress Test Results

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