U.K. Banks Show Resilience With Brexit Risks Ahead, Moody's Says

(Bloomberg) -- U.K. banks are better placed to withstand a slowing economy as the country exits the European Union, Moody's Investors Service said.

Moody's raised the outlook on the nation's banks to stable from negative, according to a report Wednesday. Strong capital positions, loan quality and funding should underpin profitability even as the economy slows, while additional costs associated with preparing for Brexit will be “moderate,” it said.

Moody's findings contrast with a report this week by Oliver Wyman Inc., which said lenders may need to find as much as $50 billion of additional capital to support new European units if there is a hard Brexit, equivalent to 15 percent to 30 percent of the capital wholesale banks commit to the region. HSBC Holdings Plc on Monday said it will have to pay as much as $300 million in relocation and legal costs as it moves 1,000 investment bankers to Paris.

“We expect U.K. banks' solvency to remain robust, with broadly stable profitability and liquidity as well as strong funding positions, despite our expectation over the next 12-18 months of a modest deterioration in operating conditions,” Laurie Mayers, an associate managing director at Moody's, said in the report. 

Moody's said it placed Lloyds Banking Group Plc on review for an upgrade as it determines whether improvements in asset risk and profitability are sustainable at Britain's biggest mortgage lender. The review will take into account the prospect of falling costs for past misdeeds, including the payment protection insurance scandal that has so far cost the bank 18 billion pounds ($24 billion).

Moody's action reflects “significant improvements made by the bank in areas such as profitability, asset quality and funding profile,” Lloyds said separately.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Ross Larsen, Paul Armstrong