UK bank shares climb following Fed hike speculation
Bulls piled into UK banks this morning as the Remain camp took a boost in the polls and the US Federal Reserve signalled it could hike interest rates next month.
Equites across the board tumbled – a standard reaction to signals of tighter monetary policy – sending the FTSE 100 down by 1.5 per cent in the first hours of trading this morning.
Lenders brushed off the bears however to top the FTSE 100 leaderboard. Royal Bank of Scotland (RBS) was up 2.7 per cent, Barclays surged by 2.1 per cent and Standard Chartered and Lloyds Banking Group were also up by over one per cent.
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Higher interest rates are good news for banks as they give lenders more scope to stretch their "net lending margin" – the difference between the interest rate they borrow at and what they lend at.
Chris Beauchamp of IG said: "UK banks have been handed two bullish catalysts in as many days. Yesterday’s poll that gave ‘Bremain’ a good lead in the EU referendum lifted domestic banks such as Lloyds and RBS, while hopes of higher US rates have given the whole sector a boost."
Low – and especially negative – rates put business models under strain, as a host of European lenders have discovered in recent years.
The International Monetary Fund (IMF) has warned that one-third of Europe's banks will struggle to turn a profit, while surveys from the European Central Bank (ECB) have also shown that lenders are struggling to stay in the black in the negative interest rate era.
Revenues in the investment banking sector are set to plummet this year to depths even lower than during the recession, and a number of big players are cutting staff.