Here’s something of a surprise:
A fairly muted reaction (at pixel time anyway) from the UK banking sector to the new ConDem coalition.
Surprising because the Conservatives look likely adopt the aggressive anti-bank policies of the Liberal Democrats manifesto (although everything is subject to negotiation in this new collaborative age).
From the FT:
The new coalition has also agreed a substantive package of reforms to banking regulation, including an agreement to go ahead with a levy. An independent commission will be set up to examine the case for measures to break up banks into separate retail and investment banking operations along the lines of the former Glass-Steagall act in the US.
And in more detail:
Both parties have agreed to impose a banking levy and to crack down on bonuses, to create more competition in the banking sector and explore ways to require banks to make more loans available to small businesses. An independent commission would consider breaking up big banks, which combine retail and investment banking arms, and report back within a year. The fudge reflects the fact that Mr Osborne wants only to break up big banks based in London under an international agreement, while Mr Cable wants Britain to take unilateral action if necessary
Now, the LibDems have talked of a 10 per cent tax on bank profits to part fund an increase in the tax free personal allowance to £10,000.
According to the analysts at Merrill Lynch that would trigger some pretty chunky downgrades.
If a 10% tax on profits meant that bank corporate tax was set at 38%, instead of 28%, then our Lloyds 2012 EPS would drop by 15% to 10.6p (from 12.5p).
As for a UK version of Glass-Steagall — an Osborne-Cable perhaps — does that mean Barclays will be forced to spin off Barclays Capital? Will HSBC be forced to demerge its investment bank and what about RBS’s Global Banking & Markets business?
Back to Merrill:
Whilst splitting banks might sound like a good thing for politicians to suggest, the reality is clearly very different and the idea of split Barclays and HSBC, for example, sounds implausible to us. That said, near term it will create uncertainty and that is clearly not good, suggesting to us that at least short term, the UK banks may struggle to make further headway. Given that they are up year to date they may see some profit taking.