Bankers Ring New Alarm Bells Over Brexit Threat to the Economy

(Bloomberg) -- Brexit is taking an even bigger toll on the largest U.K. banks.

After years of work and millions of pounds spent in preparation for the U.K.'s withdrawal from the European Union, the delay to October and seemingly endless questions about the outcome are casting a cloud over bankers' outlooks and taking the shine off the rise in shares this year. The sentiment was underlined on Friday when HSBC Holdings Plc's Chief Financial Officer Ewen Stevenson warned that the uncertainty is plaguing consumer and business confidence.

“We continue to be cautious on the U.K., probably more than anywhere else given the array of Brexit outcomes that could drive some pretty different economic outcomes,” Stevenson said in a phone interview.

HSBC's views were shared in recent days by the country's most senior bankers.

Royal Bank of Scotland Group Plc

The U.K. government-backed lender issued its strongest warning yet on the impact of Brexit, when it said April 26 that Britain's slowing economy is likely to eat into income over the coming months. Shares in RBS, which is historically the country's largest lender to small- and medium-sized businesses, tumbled on the news and analysts cautioned that the bank might miss its profit targets.

Barclays Plc

Jes Staley, the bank's chief executive, emphasized that Brexit is a big drag on Barclays's stock price and told analysts last month that the lender is positioning itself conservatively to withstand the uncertain U.K. outlook. The bank reduced its loan-to-deposit ratio and has increased its stock of high-quality liquid assets to prepare for any volatility in markets. The bank's retail division missed analyst estimates in the first quarter.

Lloyds Banking Group Plc

Lloyds, the largest U.K. mortgage lender, is striking a more upbeat tone and is one of the few banks to not make a provision for a Brexit-related downturn in its business. Still, Chief Executive Officer Antonio Horta-Osorio said that continued uncertainty over the U.K.'s withdrawal could further affect the economy.

Banco Santander SA

Banco Santander SA's U.K. subsidiary, one of the largest personal finance lenders in the country, said Brexit is dragging down profits. Santander UK Plc's profits before tax were down 35 percent in the first quarter from a year earlier and the bank warned of a slight deterioration in U.K. economic growth this year.

What Bloomberg Intelligence Says

Barclays and RBS sounded notes of Brexit caution at 1Q earnings, ahead of the next U.K. rate decision and confirming some recent, bleak loan data. Despite Brexit delays and avoidance of a cliff edge, U.K. local elections and imminent leadership change will force the BofE to remain dovish, squeezing bank profit further and stoking competition.
-- Jonathan Tyce and Georgi Gunchev, bank analysts

--With assistance from Stefania Spezzati and Harry Wilson.

To contact the reporter on this story: Silla Brush in London at sbrush@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Marion Dakers

©2019 Bloomberg L.P.