Banks plummet on ringfence anxiety
INVESTORS ditched British banks yesterday after a note by influential analysts unleashed fears that the government’s reform plans for lenders could slash their profitability by 15-25 per cent.
The note estimates that implementing the Vickers Commission’s proposal to hive off banks’ retail from their wholesale business could cost RBS, Lloyds and Barclays up to £10bn and raise their wholesale funding costs by 100 basis points.
In response, Lloyds saw its share price drop 3.7 per cent, Barclays lost 3.55 per cent and RBS plunged 4.9 per cent. In total, the three banks saw their value shrink by over £4bn.
It is also understood that the ringfencing threat was a hot topic at a dinner held by RBS for its top private shareholders on Wednesday, with investors anxious about how execs will mitigate the impact.
The note on ringfencing, by HSBC’s Robin Down, Peter Toeman and Ben Ashby, says that investors have so far not given the ringfencing proposal credibility because the government does not know how it will work. But chancellor George Osborne has nonetheless vowed to implement it.