We need to talk about UK banks
While analysts focus on net interest margins and the turning credit cycle, there is an extraordinary risk hiding in plain sight.
Theresa May's effort to engineer a sensible looking soft departure has actually increased the risk of a no deal exit
In August UK banks will finally start reporting their second quarter results, limping in behind their US and European counterparts. Analysts can barely conceal their disregard. “Curb your enthusiasm – if you had any,” suggest analysts at UBS, whose best hope is that net interest margins – the key sector risk in many investors’ minds – should at least prove stable in 2018, helped by falling wholesale funding costs.
Expect much nitty-gritty discussion of NIM, of the wider impact of HSBC’s plans to put funding and liquidity trapped inside its UK ring-fenced bank to work in building its share of mortgage lending and on Lloyds Banking Group’s continuing ambitions to grow higher margin, and so higher risk, consumer loans.
You might not tell it from their share price performance or valuations – UK banks trade on earnings multiples at a substantial discount to their European peers, which themselves trade on price-to-book values still seemingly stuck in the crisis era – but UK banks have enjoyed a golden age.
UK unemployment and loan loss rates are at, or close to, their lows, yet wage price inflation is subdued.