Shares in British banks are undervalued, in part because of a lingering perception that they are still hampered by Brexit and a negative political climate toward institutions, Britain’s financial services minister said on Tuesday.
Bim Afolami, the Treasury’s business secretary, said in an interview with Reuters that these perceptions were unfounded and that Prime Minister Rishi Sunak’s government was working to change them by responding to the sector’s needs.
Shares in British banks have struggled for much of the past year despite stability, lower risk and solid returns, prompting Bank of England Governor Andrew Bailey on Monday to call their valuations a “mystery.”
Afolami, in Washington as part of his first visit to the United States since taking office in November, said banks were still reeling from uncertainty caused by Britain’s exit from the European Union.
“There are simply some international investors who have automatically taken a discount on UK banks because of Brexit. I could understand that when there was a real period of uncertainty in 2016, but I think that is now completely unnecessary and overdue,” said Afolami. “I think they’re making a mistake with that.”
Market participants may also not have fully digested the changes in Britain’s banking sector since the 2008 financial crisis, Afolami said, noting that NatWest Group is now a far stronger company than its predecessor, Royal Bank of Scotland, which was bailed out by the government in 2008 had to become.
NatWest shares closed down 1.6% at 204.4 pounds on Tuesday, almost 100 pounds lower than a year ago.
“So what I’m saying to the market is: find out before anyone else does that these banks are undervalued because Britain is a great place to be in banking,” Afolami said. “We are making the right reforms and you have a government that is really keen to listen to the views of the financial sector.
Britain’s banking sector has been spared from last year’s interest rate turmoil, which brought down U.S. regional banks Silicon Valley Bank and Signature Bank and prompted Swiss regulators to push Credit Suisse into a merger with larger rival UBS.
As countries complete implementation of Basel III capital agreements, U.S. regulators are trying to impose tougher capital requirements on the largest banks, which they are fiercely resisting. The move would partially reverse some easing of capital requirements for regional banks under the Trump administration in 2017.
Afolami said that negotiations between Basel III signatory states on the minimum amounts required are still ongoing. He declined to comment directly on the values proposed by U.S. regulators, but said Britain had so far taken a “very risk-averse approach” to regulating its banking sector. He said it is now relaxing some rules to ensure there is adequate lending to small and medium-sized businesses.
“I think the U.S. has historically had a less risk-averse approach than we have, and America will make its own decisions about how it wants to regulate,” Afolami said. “We start from a different starting point than the American system.
Afolami said Britain was committed to taking a “cooperative approach” to the Basel rules and would discuss the issues fully with US counterparts. (Reporting by David Lawder; Editing by Leslie Adler)
2024-02-14 02:17:51
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