Shares of British banks are undervalued in part because of the persistent perception that they remain weighed down by Brexit and a negative political climate towards the institutions, the British Financial Services Minister said on Tuesday.
Treasury Economic Secretary Bim Afolami told Reuters in an interview that those perceptions are unfounded and that Prime Minister Rishi Sunak’s government is working to change them by being responsive to the sector’s needs.
British bank shares have suffered for much of the past year despite their stability, lower risk and solid earnings, prompting Bank of England Governor Andrew Bailey to brand their valuations a “puzzle” on Thursday. Monday.
Afolami, who was in Washington as part of his first visit to the United States since taking office in November, said banks were still suffering from the “hangover” of uncertainty caused by Britain’s exit from the European Union.
“There are simply some international investors who automatically gave a discount to British banks because of Brexit, which I could understand when there was a real period of uncertainty in 2016, but I think it is now unnecessary and long gone,” Afolami said. “I think they’re getting that wrong.”
Market players may also not have properly digested the changes in the British banking sector since the 2008 financial crisis, Afolami said, noting that NatWest Group is today a much stronger company than its predecessor Royal Bank of Scotland, which required a government bailout in 2008.
NatWest shares closed down 1.6% on Tuesday at £204.4, almost £100 lower than a year ago.
“So what I say to the market is think before everyone else that these banks are undervalued because, you know, Britain is a great place to be in banking,” Afolami said. “We are making the right reforms, you have a government that is really willing to listen to the opinions of the financial sector.”
Britain’s banking sector last year avoided the interest rate turmoil that caused US regional banks Silicon Valley Bank and Signature Bank to fail and led Swiss regulators to push Credit Suisse into a merger with larger rival UBS.
As countries finalize implementation of the Basel III capital accords, U.S. regulators are seeking to impose stricter capital requirements on the largest banks, which are strongly pushing back against the proposal. The move would partly reverse some relaxation of capital requirements for regional banks under the Trump administration in 2017.
Afolami said negotiations were continuing between Basel III signatory countries on the minimum levels needed. He declined to comment directly on the levels U.S. regulators were proposing, but said Britain had previously taken a “very risk-averse approach” to regulating its banking sector. He said he is now relaxing some rules to ensure adequate loans are provided to small and medium-sized businesses.
“I think the US, in times past, had a less risk-averse approach than ours, and the US will make its own decisions on how it decides to regulate,” Afolami said. “From where we are, we start from a different place than the American system starts from.”
Afolami said Britain was determined to have “a collaborative approach” to the Basel rules and would discuss the issues fully with its American counterparts. (Reporting by David Lawder; Editing by Leslie Adler)
2024-02-14 02:05:46
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